Shock, Slack, and Strategy: Why Canadian Markets Just Hit a Turning Point

It is the kind of conversation that starts with a whisper and ends in a thunderclap. In the opening segment of BNN Bloomberg’s April 4, 2025, 9AM broadcast¹, anchor Andrew Bell set the stage with an ominous tone: Canadian employment figures had disappointed, U.S. tariffs had surged, and global markets were rattled. To unpack the fallout, Bell is joined by Earl Davis, Head of Fixed Income and Money Markets at BMO Global Asset Management, and Karl Schamotta, Chief Market Strategist at Corpay. What follows is a sobering but insight-rich dialogue about policy, volatility, and the shape of things to come.

The Job Market Miss—and Why It Matters

From the outset, Davis pulls no punches. For him, Canada’s weak jobs report is not just another data point—it’s a signal flare for the Bank of Canada. “I think it increases the pulse possibility of an ease,” he says, noting the market’s 50% probability for a 25-basis-point cut. More importantly, the weak print gives the central bank “opportunities in the next meeting” to look through sticky inflation and focus on growth risks instead.

Schamotta agrees, noting that the initial signs of 2024 recovery have now evaporated. “We’re looking at a lack of confidence among Canadian employers, among consumers. Businesses overall are… pulling back on investment plans, on hiring plans.” The implications? More job losses ahead and more “room to begin easing rates more dramatically”.

Bell pushes further: does Canada still have restrictive monetary policy? Schamotta’s response is both tongue-in-cheek and chilling: “Measures of the neutral rate are always highly theoretical… almost a religious phenomenon.” But beneath the irony is a clear consensus: “We’re still in restrictive territory,” and even sub-2% policy rates might still qualify as tight.

Davis, for his part, sees even more dovish potential: “I saw terminal rates at 2%. I now think there’s a higher probability we get to one and a half by year end.” A “one-handle” on Canadian interest rates would be a profound shift, one made more likely by the growing sense of economic fragility.

Tariffs, Uncertainty, and the Shock to Global Trade

If the jobs data was a red flag, the reimposition of U.S. tariffs is a flashing siren. While Schamotta is measured—“not exactly” surprised—his real concern was existential. “The question… isn’t so much about the scale of it. It’s the motivation.” With Trump bundling disparate policy goals—manufacturing, immigration, currency strength—into a single tariff strategy, Schamotta warns, “It still isn’t clear why he’s doing this”.

That opacity, he argues, introduces profound systemic risk. “We could be looking at major changes to how the global financial system works in addition to how global trade works.” In other words, tariffs may be the beginning, not the end, of the disruption.

Davis, by contrast, is stunned. “I thought this was a worst-case scenario, and it changed my view going forward and approaching the markets 180 degrees.” What troubles him most wasn’t just the scale, but the intention. “This is tariffs for tariffs’ sake as a revenue generator,” he says, a view underscored by the targeting of China—it's third largest trading partner.

The retaliation from China, already in motion, signals a trade war escalation with no clear off-ramp. “We haven’t hit peak uncertainty yet,” Davis warns. “This to me is a total paradigm shift right now.”

Volatility Ahead—But Not Necessarily Recession

Despite the gloom, Davis is far from bearish in the traditional sense. Rather, he frames this period as one of tactical opportunity. “I actually love these type of moments,” he says, referencing his 30 years in markets. The challenge, as he sees it, is navigating the volatility without succumbing to fear.

“We don’t see a recession in 2026,” Davis asserts confidently. Why? Three reasons: “There’s a lot of dry powder from central banks,” “fiscal room” in both Canada and the U.S., and most critically, “so much cash on the sidelines” in money markets, waiting for signs of stability.

This liquidity, he believes, could be deployed rapidly into risk assets—equities, corporate bonds, long duration bonds—if clarity returns. “It’s an important time to have a balanced portfolio,” Davis stresses. And when it comes to fixed income strategy, he was unequivocal: “It’s extremely important to add duration to portfolio.” With long bonds yielding more than projected terminal rates, the carry and capital gain potential are too attractive to ignore.

That doesn’t mean backing up the truck. Davis clarifies: “We rallied a lot very rapidly… Here, I wouldn’t add to bonds. I wouldn’t sell. But I look to be a better buyer on any sort of weakness.” Active management, he says, is paramount in “these type of volatile environments”.

Monetary Mutation: Could the U.S. Weaponize Capital Flows?

Bell, sensing the conversation’s deeper implications, turns to Schamotta: what if Trump’s next move involves reshaping the global financial system? Schamotta doesn’t flinch. “Some [advisors] are recommending things like Tobin taxes… user fees for treasuries… all sorts of things like that.” Such changes would amount to a fundamental rewiring of the global economic order.

“The closest parallel to the current situation is the Nixon shock,” Schamotta notes. That historic pivot—severing the dollar from gold and abandoning Bretton Woods—“led to shock waves across the global economy.” This time, similar policy experimentation could follow, and the secondary consequences might again take years to play out.

Davis adds that even taxing bond income—once eliminated by Reagan—could be tactically reintroduced to influence investor behavior. “They could… say, we will have a withholding tax on coupon income up to ten years… If you hold any bonds longer than that, there’s no withholding tax.” The idea? Quietly push global buyers out the yield curve to extend U.S. debt duration.

Final Thought: Opportunity in Uncertainty

In a conversation dense with data, nuance, and macro risk, the underlying message is clear: we are not in Kansas anymore. Between Canada's weak jobs data, the onset of a new global trade war, and the rising potential for radical U.S. policy shifts, this is no longer a “steady as she goes” moment.

Still, Davis and Schamotta are not despondent. Instead, they offer a roadmap for navigating the fog: embrace volatility, stay active, extend duration, and prepare for a macro regime change.

“The reason why we don’t see a recession is threefold,” Davis reminds viewers. “Monetary policy, fiscal room, and cash on the sidelines.” It may not be pretty, but it’s not 2008.

Yet if we’ve learned anything from history—from the Nixon shock to the COVID aftermath—it’s this: “The four most expensive words in the English language,” Schamotta concludes, “are ‘this time is different.’”

1 BNN Bloomberg, April 4, 2025 9:00AM Opening Bell.