Geopolitical Tensions and Trade Uncertainties Weigh on Canadian Equity Markets

Canadian stock markets retreated on Monday as trading resumed following the Christmas break, with investors adopting a cautious stance amid intensifying geopolitical tensions and mounting concerns over trade relations with the United States. The S&P/TSX Composite Index concluded the session at 31,896.59, registering a decline of 103.17 points, representing a 0.32% loss from the previous close.

Market Performance and Sectoral Breakdown

The broader market sentiment reflected mixed dynamics across the 11 major sectors. Seven sectors managed to advance during the trading session, with Communication Services taking the lead by gaining 1.13%. Energy stocks climbed 1.01%, while Consumer Staples and Real Estate demonstrated modest strength with gains of 0.54% and 0.39% respectively.

Conversely, Materials sector proved to be the most significant laggard, declining 2.88%, followed by Healthcare’s 1.50% drop and Information Technology’s 0.46% pullback. Consumer Discretionary also faced headwinds, falling 0.19%.

Among blue-chip performers, BCE Inc surged 1.84%, Telus Corp advanced 1.54%, while Terravest Capital Inc and Jamieson Wellness Inc rallied 3.35% and 1.71% respectively. On the downside, Curaleaf Holdings Inc and Perpetua Resources Corp experienced significant declines of 6.38% and 6.88% respectively. Agnico Eagle Mines Ltd fell 5.25%, and Orla Mining Ltd slipped 5.64%. Mining stocks faced particular pressure as gold prices retreated following profit-taking from previous peaks.

Ukraine Aid and Diplomatic Progress Shape Market Sentiment

A critical backdrop to today’s market movements involves accelerating diplomatic initiatives and economic support packages. Ukrainian President Volodymyr Zelenskyy’s recent visit to North America included discussions with U.S. President Donald Trump at Mar-a-Lago, where both parties characterized their conversation as “progressive.” Trump’s parallel engagement with Russian President Vladimir Putin yielded what was described as a “productive” dialogue aimed at achieving a cessation of hostilities.

These diplomatic overtures initially buoyed risk sentiment, though optimism proved short-lived. Fresh exchanges of military strikes targeting Russian and Ukrainian energy infrastructure have renewed concerns about escalation. Meanwhile, Canada’s commitment of $2.5 billion in additional economic assistance to Ukraine—building on its cumulative $22 billion support since 2022—reflects Ottawa’s geopolitical positioning, though this gesture has encountered domestic criticism amid ongoing economic pressures.

Trade Tensions and the CUSMA Negotiations Loom Large

Perhaps the most pressing concern for Canadian market participants remains the evolving U.S.-Canada trade environment. Since August, Trump administration tariffs of 35% have been imposed on Canadian exports, creating significant headwinds for key industries including steel, aluminum, automobiles, and softwood lumber. Despite ongoing negotiations, Trump abruptly suspended trade talks with Canada, amplifying uncertainty.

The impending renewal of the Canada-United States-Mexico Agreement (CUSMA), scheduled for 2025, carries outsized importance for Canada’s economic trajectory. Approximately three-quarters of Canadian exports flow to the United States, with most currently transiting through CUSMA corridors that provide tariff exemptions. Given that two-thirds of Canada’s economic output derives from international trade, any material disruption poses substantial systemic risks.

The Bank of Canada’s recent policy deliberations explicitly flagged CUSMA renewal uncertainty as a primary threat to business investment and economic growth prospects. Market observers anticipate that Federal Reserve minutes scheduled for release tomorrow may provide insight into the interest rate path, potentially influencing investor positioning ahead of year-end.

Market Outlook

Teck Resources Ltd and Peyto Exploration and Development Corp emerged as key price drivers during the session. The convergence of geopolitical risks, trade policy uncertainty, and commodity price volatility continues to create a complex backdrop for equity valuations as 2024 concludes.