Canadian and Mexican financial markets posted strong gains this week, buoyed by positive developments on the trade and economic fronts. The postponement of U.S. tariffs provided a much-needed reprieve for both economies, while domestic factors—a shift in economic sentiment in Canada and a rate cut in Mexico—further fueled market optimism. However, uncertainties remain as both nations navigate ongoing geopolitical and economic challenges.
A Temporary Reprieve from U.S. Tariffs
The looming threat of trade restrictions from the U.S. had weighed heavily on both Canada and Mexico, but a last-minute agreement reached with President Trump pushed back the imposition of tariffs by one month. This delay followed negotiations regarding border control measures, with Mexico deploying 10,000 national guardsmen to curb migration and Canada committing $1.3 billion to fortify its border security, particularly to combat fentanyl trafficking. The market response was swift, with Mexican equities surging more sharply than Canadian markets in reaction to the announcement.
Canada’s Economic Response and Market Sentiment
Beyond trade developments, Trump’s tariff threats rekindled a sense of economic nationalism in Canada, leading to increased support for domestic businesses. Many analysts believe that this sentiment could lead to a longer-term shift, with more businesses and consumers advocating for greater trade diversification beyond the United States. Last week, Canadian markets saw moderate gains, reflecting both relief over the tariff delay and confidence in the country’s strategic response to economic pressures.
Mexico’s Rate Cut and Market Rally
Meanwhile, Mexico’s central bank slashed its benchmark interest rate by 50 basis points to 9.50%, citing slowing inflation and economic contraction risks. With headline inflation easing to 3.69% in mid-January, policymakers signaled openness to further cuts if disinflation continues as projected. The market welcomed this move, as lower interest rates typically stimulate investment and economic growth. Investors reacted positively, with Mexican equities rallying significantly over the week, outpacing broader North American markets.
Mexico Leads ETF Performance
Mexican and Canadian ETFs posted solid gains over the week, reflecting investor optimism following the tariff delay and Mexico’s interest rate cut. Mexican-focused ETFs surged +3.76% WTD, with the iShares MSCI Mexico ETF (NYSE:EWW) leading the way, rising +3.79% WTD and +8.29% YTD. Canadian ETFs advanced more modestly, up +1.37% WTD, with the iShares MSCI Canada ETF (NYSE:EWC) gaining +1.37% WTD.