Canada Life Monthly For the month ended July 31, 2025

Introduction

Global equity markets moved slightly higher over the month of July. Investors were encouraged by the U.S. reaching several trade agreements, particularly with Japan and the European Union (“EU”). However, China and the U.S. were unable to reach a final agreement. Overall, economic data was solid but showed that global economic activity is slowing.

 

Several central banks, including the Bank of Canada (“BoC”), the U.S. Federal Reserve Board (“Fed”) and the European Central Bank (“ECB”), held meetings in July and elected to keep their policy interest rates steady. All are closely monitoring the potential impact of tariffs on their domestic economies. The U.S. economy expanded in the second quarter, rebounding from a contraction in the first quarter. Still, growth was underwhelming over the first half of 2025. China’s economy also expanded in the second quarter. Europe’s economy grew slightly, posting a slowdown from the first quarter.

 

The S&P/TSX Composite Index moved higher over the month, reaching new highs along the way. Communication Services was the best-performing sector. U.S. equities also advanced and reached a new record. Yields on 10-year government bonds in Canada and the U.S. increased. Oil prices finished higher over the month, while the price of gold was largely unchanged.

 

On August 1, U.S. President Donald Trump announced tariffs on several countries around the world ranging between 10% and 41%. These tariffs are expected to go into effect on August 7. The President also announced he was raising tariffs on Canadian goods that are not included in the United States-Mexico-Canada Agreement to 35%.

 

New tariff date set for August 1

Back in April, U.S. President Donald Trump announced the U.S. would impose reciprocal tariffs on many countries around the world. President Trump later paused those tariffs, allowing countries to come forth and negotiate trade deals with the U.S. At the beginning of July, when that 90-day pause was expected to end, President Trump set a new deadline of August 1 (later changed to Aug. 7 for most countries, excluding Canada). Countries continued to frantically negotiate with the U.S., with several major economies reaching agreements. Among major economies, Japan reached a new trade agreement with the U.S. The agreement included a 15% tariff on Japan’s exports into the U.S., along with Japan agreeing to open up its market to more U.S. goods. Near the end of the month, the U.S. and EU reached an agreement after a meeting in Scotland. There will be a 15% levy on most European goods, while the EU will remove tariffs on some U.S. goods. The agreement includes the EU purchasing US$750 billion of U.S. energy products. Meanwhile, China and the U.S. were unable to finalize their trade deal, but talks will continue, raising optimism that a final agreement will be reached. Canada continues to negotiate with the U.S. but had yet to reach a deal by the end of July.

 

Major central banks stay on the sidelines

Amid trade tensions, along with economic and market uncertainty, several major central banks held their policy interest rates steady at their July meetings as they monitor the economic landscape. The BoC held its benchmark overnight interest rate steady at 2.75%. The unpredictability of tariffs and their potential impact on Canada’s economy has clouded the BoC’s economic outlook. Canada’s central bank noted that if inflationary pressures remain relatively soft and economic growth slows, it would be open to lowering interest rates again. It was a very similar story in the U.S. The Fed maintained the target range for its federal funds rate at 4.25%–4.50%, citing uncertainty about tariffs and their impact on economic activity and inflation. For now, the Fed sees contained inflation and a relatively solid labour market. However, the Fed downgraded its outlook for the U.S. economy, seeing signs of a slowdown over the first half of the year. This could suggest the Fed may be preparing to lower interest rates at an upcoming meeting. Fed Chair Jerome Powell continues to come under pressure from President Trump to lower interest rates. However, Powell continues to reiterate officials’ focus on the Fed’s stated goals. The ECB and Bank of Japan also held steady in July. Major central banks have turned to holding steady as they monitor the impact of trade tensions. Central banks have not ruled out the possibility of more rate cuts this year as trade tensions and economic conditions evolve.

 

Trade tensions hinder Canada’s trade activity

Early in the year, Canada’s trade activity surged higher as Canadian and U.S. purchasers tried to get ahead of tariffs. However, the tariffs eventually came into place, weighing heavily on Canada’s trade activity. In April, Canada’s economy posted a record trade deficit of $7.14 billion in large part due to a 10.8% decline in exports, which included a 15.7% decline in shipments to the U.S. The results were much the same in May. The economy ran another steep trade deficit of $5.9 billion. Imports dropped sharply. Meanwhile, exports advanced. However, a rise in exports to foreign countries was partially offset by a 0.9% decline to the U.S. The data suggests that trade tensions between Canada and the U.S. have hurt trade activity, weighing on Canada’s economic conditions. Statistics Canada says that Canada’s economy shrank by 0.1% in May. A delegation of officials from the federal government remains at the negotiating table with the U.S. but has thus far been unable to reach an agreement. Prime Minister Mark Carney said that negotiations were at an “intense phase.” It is unlikely Canada will rid itself of most, if not all, U.S. tariffs, but an agreement would lower uncertainty and potentially raise confidence levels.

 

China’s economy grew more than expected

China’s economy continued to expand at a relatively solid pace over the second quarter of 2025. However, underlying data points to some weakness that has stunted even bigger growth. China’s economy grew by 5.2% year-over-year in the second quarter, topping economists’ expectations but slowing from the 5.4% growth in the previous quarter. Ongoing stimulus measures from the government and the People’s Bank of China helped boost growth over the quarter. The economy also benefited from a relatively strong industrial sector. Conversely, economic growth continues to be hindered by soft domestic demand, despite efforts to boost spending. Troubles in the property market persist.

 

After reaching a framework for a trade deal with the U.S. in June, the two sides met in July but did not reach a final agreement. Some details still need to be worked out. The tariff truce established in June remains in place, but the sides are closing in on the August 12 deadline, which is putting pressure on both sides to reach a final agreement. A lack of agreement and tariff uncertainty between the world’s two largest economies could stunt global economic activity. Beijing noted that trade uncertainty and muted domestic demand remain a risk to growth.

 

 

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