 Welcome to Mind Your Business ! Consider this your weekly guide to understanding what’s happening in the worlds of economics, business and finance. By Peter Armstrong
|  | Bank of Canada governor Tiff Macklem will have to decide how to fight tariffs this week. (Sean Kilpatrick/The Canadian Press) | | | I started writing this newsletter as a way of framing and better understanding how the events of the week ahead were going to shape the conversation.
But events are happening at a breakneck speed right now. So the last few editions have been focused on the impact those events are having.
But this week, we have the Bank of Canada deciding about interest rates. It's also releasing its updated forecast, which will factor in the tariffs, the trade war and all the uncertainty that comes with them.
Economists are split on whether the bank will cut rates or hold fast.
"We’re expecting a 25 [basis point] rate cut, but with relatively low conviction, given the ongoing dilemma for all central banks these days between growth and inflation in a trade shock," said RBC economist Claire Fan.
Those forecasting a rate cut are mostly focused on the way in which the combination of tariffs, a broader (and broadening) trade war and uncertainty are already weighing on the economy here.
Last week's Survey of Consumer Expectations from the Bank of Canada found Canadians are quite predictably worried about the road ahead.
"This greater pessimism is consistent with growing concerns about job security and a recession. Indeed, the share of consumers anticipating a recession in the coming year increased significantly (67 per cent this quarter compared with 47 per cent last quarter)," wrote the central bank. | | |  | | | | | Before the bank announces its decision on Wednesday, we'll get one last batch of data.
CPI numbers will be released on Tuesday.
Tariffs have a slightly weird impact on inflation (to use a technical term). On the one hand, they're inflationary, and drive up prices. On the other hand, they're deflationary, as they drive down demand in the medium and long term.
But as we saw up close and personal after COVID-19, inflation expectations can be hard to control once they start moving.
Tariffs have just started to bite and remain in place against only some parts of some industries. This week's numbers will only capture the very beginning of the tariffs hitting Canadian exports.
Still, inflation data on Tuesday is expected to show price growth ticked up slightly, to 2.8 per cent.
If that forecast holds, it will make the central bank's considerations more difficult.
We already know inflation expectations are rising.
The central bank's Business Outlook Survey, also released last week, found expectations are that price growth is accelerating yet again.
"Firms’ near-term inflation expectations have increased considerably since last quarter. Concerns around the inflationary impacts from tariffs are outweighing reduced inflationary pressures from weak demand," wrote the Bank of Canada. |  | | | And to top it all off, we will get the latest home sales figures on Tuesday.
The real estate market, once a primary driver of the Canadian economy, has slowed sharply of late.
In a normal time, this would be an incredibly busy and consequential week.
And yet we all know, on the whim of one man in the White House, all this could be pushed very quickly to the back burner.
It's hard to figure out how to write about all this. I can't imagine what it's like to run or plan a business amid such turmoil.
What do you think will happen?
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forwarded to you. | | |  | | We will get the latest inflation numbers on Tuesday. Economists believe price growth accelerated again to 2.8 per cent in March. | | | | | | On Wednesday, the Bank of Canada will announce its latest interest rate policy. Some believe the central bank will cut to stimulate the economy ahead of tariffs. Others think it will keep rates steady to offset rising inflation. | | | | | | The latest Canadian real estate numbers will be released on Tuesday. Home sales across the country have slowed over the last year. Watch for activity and price growth in the hotter markets. | | | | | Three things to read, watch and listen to this week | | |  | Donald Trump is learning that the bond market is king. (Zolak/Shutterstock) | | | 1. Don't mess with the bond market | | | There's a great story about Bill Clinton reckoning with the power of the bond market.
Back in the 1990s, then-president Clinton was informed that his economic reforms weren't going to work because they would cause borrowing costs to rise too much.
In Bob Woodword's book The Agenda, he paints the picture of a high-stakes meeting in a board room as an increasingly frustrated Clinton turning red with anger.
"You mean to tell me that the success of the program and my re-election hinges on the Federal Reserve and a bunch of fucking bond traders?" Woodward quoted him as saying.
Later, Clinton's strategist and advisor James Carville said this:
"I used to think that if there was reincarnation, I wanted to come back as the president or the pope or as a .400 baseball hitter. But now, I would like to come back as the bond market. You can intimidate everybody."
Those are key lessons learned by many in the Trump administration last week.
Two fantastic pieces bring those lessons together:
This one from Ben Smith at Semafor. And this one from Matt Levine's Money Stuff newsletter.
Levine tries to explore what last week tells us about the very idea of a safe haven.
"For as long as I can remember, U.S. Treasury bonds have been the world’s preeminent safe-haven asset. When scary stuff happens in financial markets, investors sell their risk assets and buy Treasuries," wrote Levine.
Oddly enough, that axiom held even when (or perhaps especially when) the U.S. government did things that undermined that credibility.
"When scary stuff happens to the creditworthiness of the U.S. government, investors sell their risk assets and buy Treasuries. When ratings agencies downgrade the U.S., people buy Treasuries. When it looks like the U.S. Treasury might run into its debt ceiling and default on its debts, people buy Treasuries. When Treasuries get riskier, investors flee from risk, to Treasuries," he wrote.
That's why everyone was so freaked out about the bond market last week. An escalating trade war was roiling markets. Everyone knows about the sell-off.
But in that kind of moment, Treasuries should have been going like gangbusters. Remember, with bonds, when prices rise, yields fall. When prices fall, yields rise.
Last week, yields were rising. By a lot.
The bond market is orders of magnitude bigger than the stock market. It usually moves in tiny increments and swings trillions of dollars with every small shift.
In the end, most people on Wall Street say some of Trump's billionaire supporters helped push him to roll back the tariffs. But they believe, in the end, it was the bond market that forced his hand.
"Investors who had clung to the idea that enough pain would force Donald Trump to buy back his policies — a 'put' in market-speak — turned out to be correct, but it wasn’t the $10 trillion that vanished from stock portfolios since last Thursday that did the trick. It was the bond market, where Treasuries had seen their sharpest moves since 2008, that pushed the president back from the brink of a trade war that could have sparked a global recession," wrote Smith.
Check out both pieces, as the bond market will be a crucial space to watch in the days and weeks ahead.
Read Matt Levine's Money Stuff here.
Read Ben Smith's piece in Semafor here. | | | 2. An American-made iPhone? Don't bet on it | | | Regular readers are well aware of how much I love Joanna Stern's work. She's the amazing technology correspondent at The Wall Street Journal.
She does these videos that are just the absolute best.
Last week, she tackled what the ever-increasing tariffs on Chinese imports to the U.S. will mean for the iPhone.
"Look inside an iPhone 16 charging port, and you'll see in teeny, tiny letters China, not America. Trump's new tariffs aim to change that," she said.
But there's a problem with that. It's cheaper and more efficient to manufacture in China.
As proof of that claim, Stern cites none other than Apple CEO Tim Cook.
"China stopped being the low-labour costs country many years ago, and that is not the reason to come to China from a supply point of view. The reason is because of the skill and the quantity of skill in one location," said Cook in a previous interview.
Sure, you could move that manufacturing and assembly to the U.S., but that would take two big things. One is time and the other is money.
Like years. And billions of dollars.
"Every expert I spoke to said it's gonna take time and a lot of money. And a lot of expertise, all of which takes years to develop," she said.
Stern didn't say how much an American-made iPhone would cost, at least in part because it's simply not a real thing anyone is considering.
She did break down the actual cost of an iPhone 16 Pro.
"The hardware costs Apple about $550 US — add assembly and testing, and Apple's total cost lands around $580 US," she said.
Right now, Apple charges $1,100 US for that iPhone 16 Pro.
The latest tariff rate Trump has imposed is 140 per cent. So that hardware would rise from $580 to about $1,392.
Who knows what that would do to the price you pay. And who knows whether an exemption will be provided for American companies.
But it's going to be an important question in the coming days and weeks.
Sunday night update: On Friday night, official customs documents showed the Trump administration was giving an exemption to chips, computers and electronics. This was seen as a huge win for the likes of Tim Cook and Apple.
On Sunday morning, Trump's commerce secretary said that exemption was not permanent. And on Sunday night Trump promised steep tariffs on those precise components, but did not offer a specific timeline.
That is seen as bad news for companies like Apple.
So, it's hard to say with any real confidence what will happen to those industries and thus your iPhone. But Stern's main message, that a made in America phone is unlikely remains a pretty solid base case.
Check out Stern's video on YouTube here. | | | 3. China targets Hollywood in trade war | | | China is the second-biggest film market in the world. So it was probably inevitable that the trade war would crash into that industry eventually.
"On Tuesday, reports from China suggested that the country was mulling a ban or a reduction on the number of Hollywood films," wrote Abid Rahman and Patrick Brzeski from The Hollywood Reporter.
And sure enough, a statement from the China Film Administration confirmed a scale-back of U.S. films.
"We will follow market rules, respect the audience’s choice, and moderately reduce the number of American films imported," said the CFA in a statement.
The Chinese film industry saw a sharp dropoff in box office receipts last year. But there were hopes that this year was going to be something of a turnaround.
The Hollywood Reporter says China's Film Bureau had only just approved a slate of American blockbusters on Monday.
Marvel's latest franchise The Thunderbolts was slated for a release on April 30, and theatres were waiting for approval of the new Brad Pitt film F1.
"Local theatre chains were banking on a summer slate of tentpoles like James Gunn’s Superman and Mission: Impossible – The Final Reckoning to help fill seats and keep the market recovery going," wrote the team at THR.
But the trade war is dragging everyone in. And it can't come as a surprise that blockbuster movies from China's biggest rival would have a hard time finding audiences amid all this.
The THR team points out U.S. films aren't nearly as popular in China as they once were. But big hits still draw audiences and revenue.
"Even with Hollywood’s diminished state in China, the film business is one sector where the U.S. maintains a sizeable trade surplus with its geopolitical rival, as Chinese films, despite their enormous earnings in the home market, have made little headway with mainstream North American moviegoers," wrote Rahman and Brzeski.
Read the Hollywood Reporter piece here. | | | How the economy looks beyond Bay Street | | | Confidence update | | | Last week, I flagged the University of Michigan Consumer Sentiment Index that was set to paint a picture of growing concern in what economists call the "soft data."
To recap, soft data covers things like surveys or expectations, as opposed to hard data, like jobs numbers or GDP figures.
Soft data is a big part of why so many in the U.S. were starting to forecast a recession before the tariff situation really escalated.
So I wanted to revisit what was actually in the Consumer Sentiment Index. It matches up pretty well with what Canadian consumers told the bank of Canada.
Their confidence is falling and their expectation for inflation is rising. | | |  | It's certainly not a surprise.
But it's yet one more data point in a growing pile I keep on the edge of my desk.
What do you think?
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