Global markets recover most losses as roller-coaster day ends with pause on U.S. tariffs

Global markets closed on Monday after a roller-coaster day that saw sharp losses in the morning and partial rebounds by noon against the backdrop of a North American trade war now on pause, after both Canada and Mexico secured a one-month delay of U.S.-threatened tariffs.

Markets had opened lower on Monday, absorbing President Donald Trump's announcement on Saturday that the U.S. would impose extensive tariffs on Canadian and Mexican goods starting Tuesday. The major U.S. stock market indices largely recovered after Mexican President Claudia Sheinbaum announced Monday mid-morning that U.S. tariffs against her country would be delayed by one month.

Prime Minister Justin Trudeau confirmed on Monday after markets closed that Canada had also reached a temporary deal with Trump, giving Canada a reprieve from the tariffs for one month. The loonie strengthened to $0.69 against the U.S. dollar in response to the announcement after a dip this morning.

Canada had retaliated on Saturday with its own tariffs after Trump's executive order, which slapped a 25 per cent tariff on Canadian goods and a 10 per cent tariff on Canadian oil — and threatened further escalation should its northern neighbour fight back. 

The one-month pause will give a lot of relief to Canadian businesses and investors, said Karl Schamotta, chief market strategist at Corpay.

"But the fundamental challenges in the relationship with the U.S. remain, the threat of tariffs remains and as a result, we're going to be watching over our shoulders for a little while longer here."

Indeed, some analysts and economists have drawn out a scenario in which Canada is slapped with tariffs long-term. Others say they aren't anticipating that will come to pass.

"We do not expect the 25 per cent tariffs on Canada and Mexico to be sustained for a prolonged period," said Solita Marcelli, chief investment officer of Americas at UBS Global Wealth Management.

"The Trump administration would not want to jeopardize U.S. economic growth or risk higher inflation by leaving the tariffs in place for a sustained period, and significant stock market volatility could lead to a change in approach."

Loonie drop 'could have been worse'

Opening market reaction in the U.S. saw the S&P 500 down 1.7 per cent, while the tech-centric Nasdaq composite tumbled 2.1 per cent. The Dow Jones Industrial Average fell 557 points in early trading.

At market close, the Dow Jones was down 122.75 points, or 0.28 per cent; the Nasdaq was down 1.20 per cent; and the S&P 500 was down 0.76 per cent.

The mid-morning upward swing came after Sheinbaum confirmed during a news conference that she'd spoken with Trump and that the tariffs against Mexico had been delayed by one month, after the country agreed to deploy 10,000 national guard troops to the U.S. border.

Meanwhile, Canada's S&P/TSX Composite Index closed down 291.34 points, or one per cent, on Monday late afternoon. Earlier, the Canadian dollar had fallen to its lowest level against the U.S. dollar in more than two decades, trading at $0.6813 compared to $0.6904 on Friday afternoon. After Trudeau's announcement, it climbed back up to $0.6946.

The earlier drop in the Canadian dollar could have been a lot worse, according to Shaun Osborne, managing director and chief FX Strategist at Scotiabank.

"The reality is that the Canadian dollar probably didn't fall as far as the tariff announcement might have suggested it could," Osborne told CBC News. "We've actually seen quite a significant rebound in the Canadian dollar on the back of the headlines from Mexico."

Writing on his Truth Social platform Monday morning, Trump said that he spoke with Trudeau twice on Monday and that the calls had gone well.

"I think markets are kind of torn between the idea of whether tariffs are this temporary leverage hammer that President Trump is going to unleash on various countries around the world, or if it's something that may be a bit more permanent," said Osborne, noting that Trump has suggested as much, as a means of generating revenue and funding tax cuts in the U.S.

"So it's a highly fluid situation, a lot of volatility, a lot of uncertainty."