Hopes for a temporary easing of trade tensions as well as better-than-expected corporate earnings fuelled investor optimism. Despite the improvement, U.S. trade policy, interest rate pressures and mixed economic data continued to fuel uncertainty.
AS AT MAY 31, 2025
| Closing 31-05-25 |
Variation 30-04-25 |
Variation 31-12-24 |
|
|---|---|---|---|
| Key interest rate in Canada (%) | |||
| Key interest rate in Canada (%) | 2.75 | 0.00% | -0.50% ▼ |
| Oil (WTI) | |||
| Oil (WTI) | $60.79 | 4.4% ▲ | -15.2% ▼ |
| Gold | |||
| Gold | $3,289.25 | 0.0% ▲ | 25.3% ▲ |
| EUR/CAD | |||
| EUR/CAD | 1.56 | -0.5% ▼ | 4.5% ▲ |
| JPY/CAD | |||
| JPY/CAD | 0.01 | -1.1% ▼ | 4.2% ▲ |
| USD/CAD | |||
| USD/CAD | 1.38 | -0.4% ▼ | -4.5% ▼ |
Sources: Bank of Canada, Bloomberg Finance L.P.
CANADIAN MARKET
5.6% (S&P/TSX Composite 31-05-2025)The Canadian market returned 5.6% in May, as measured by the S&P/TSX Composite Index. The rebound took the index to new highs, mainly on the strength of the financials and industrials sectors.
On the economic front, first-quarter growth was surprisingly strong. GDP grew by 2.2% on an annualized basis, beating the Bank of Canada’s forecast. This performance masks signs of weakness, however. Domestic demand was stable, but exports were inflated artificially by a race to deliver goods before new tariffs were imposed. Tariff tensions also pushed core inflation above 3%, with food and shelter leading the price increases. At the end of the month, investors were expecting the Bank of Canada to stand pat at its June meeting.
The Canadian bond market was unchanged in May, but its apparent stability is another mask concealing a degree of volatility: The 10-year yield rose in mid-May in response to unexpectedly persistent core inflation, before falling again.
U.S. MARKET
5.8% (S&P 500 31-05-2025 in CAD)The S&P 500 Index returned 6.3% in U.S. dollars, driven by the information technology and consumer discretionary sectors. For Canadian investors, the return was reduced slightly to 5.8% by the depreciation of the greenback. Earnings from companies such as NVIDIA revived enthusiasm for artificial intelligence (AI), a theme that had been running out of steam somewhat since the start of the year.
Despite the rebound, the climate remained unstable during a month dominated by Donald Trump’s trade policy. A 90-day tariff truce with China initially reassured investors, but the threat of further increases on European imports, although short-lived, sowed doubt.
Instability was also seen in the U.S. bond market as U.S. long-term yields rose sharply on growing concerns about the country’s fiscal situation. The 30-year Treasury yield even briefly exceeded 5%, its highest level since 2007. The reasons: Moody’s downgraded the United States’ credit rating and the House of Representatives adopted the One Big Beautiful Bill, whose tax reductions would increase the federal deficit significantly over 10 years.
INTERNATIONAL MARKETS
4.2% (MSCI EAFE 31-05-2025 in CAD)As measured by the MSCI EAFE Index, developed markets outside North America were up 4.8% in local currencies and 4.2% in Canadian dollars. Europe contributed the most to the return, especially Germany, the United Kingdom, the Netherlands and France. The increase was due to a more positive economic climate, with a recovery in confidence indicators in Germany as well as a favourable monetary policy from the European Central Bank. Moreover, Trump’s decision to delay a new tariff on Europe gave the markets some breathing room. Japan also contributed to the return with strong earnings by its exporters.
EMERGING MARKETS
3.8% (MSCI Emerging Markets 31-05-2025 in CAD)Emerging markets returned 3.2% in local currencies and 3.8% in Canadian dollars on the strength of the U.S.-China tariff truce announced in mid-May. The 90-day respite buoyed Asian tech stocks, particularly Taiwan’s AI-exposed companies, which rebounded sharply.
The weaker greenback also gave a boost to emerging markets, reducing the burden of dollar debt and making imports cheaper.
