CANADA: BoC Tariff Scenarios
From the MPR’s scenario assuming that the US increases tariffs on all imported goods to 25% and its trading partners respond by increasing tariffs on imported goods from the US to 25%. See in full here.
- Benchmark case: GDP growth is 2.4pps lower than otherwise in year 1 before 1.5pps lower in year 2 and then returns to normal in year 3.
- “In other words, if annual average growth were projected to be 2% in years 1 and 2 with no new tariffs, then the growth forecast would be about -0.5% in year 1 and 0.5% in year 2 with the new tariffs.”
- That 2% in the scenario isn’t random, with the BoC forecasting 1.8% for GDP growth in both 2025 and 2026 (revised down from 2.1% and 2.3% respectively from the Oct MPR).
- Canadian CPI inflation would be just 0.1pp higher in year before a more notable 0.5pp in year 2 and 1.0pp in year 3.
- “Considerable excess supply and declining commodity prices largely offset the direct impact of tariffs in the first year, but inflation rises as excess supply is gradually absorbed in subsequent years.”
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GILT AUCTION PREVIEW: On offer next week
The DMO has additionally announced it will be looking to sell GBP2.25bln of the 4.375% Jul-54 Gilt (ISIN: GB00BPSNBB36) at its auction next Tuesday, January 7.
US: Trump Says Speaker Johnson Has His 'Total Endorsement'
US President-elect Donald Trump has issued a lengthy statement on his Truth Social site endorsing House Speaker Mike Johnson (R-LA) ahead of the January 3 speaker vote on the floor of the House of Representatives.
- Trump: "Speaker Mike Johnson is a good, hard working, religious man. He will do the right thing, and we will continue to WIN. Mike has my Complete & Total Endorsement. MAGA!!!"
- The statement comes after a damaging two-week period - starting in late December - when Trump and advisor Elon Musk torpedoed a Johnson-backed plan to fund the federal government. This week, a public spat over H-1B work visas has deepened fissures between the 'Silicon Valley' faction of the GOP, led by Musk, and the conservative 'America First' bloc of Trump's MAGA movement, raising concerns that a collapse of the GOP coalition could derail Trump's agenda.
- Trump's statement appears designed to patch up the rift ahead of the speaker vote, which will kickstart a challenging 100-day period when Trump needs near-unanimous support from House Republicans to pass a reconciliation package that will include immigration and energy legislation and likely a measure to suspend the federal debt ceiling.
- Rep Thomas Massie (R-KY) has stated he will vote 'no' on Johnson with Rep Victoria Spartz (R-IN) leaning towards 'no'. Assuming all Democrats are present and vote 'no', four dissenting Republican votes will sink Johnson's bid and force another speaker ballot.
- Chad Pergram at Fox News has a useful explainer on the implications of the speaker vote here.
GILT AUCTION PREVIEW: On offer next week
The DMO has announced it will be looking to sell GBP4.25bln of the new 4.375% Mar-30 Gilt (ISIN: GB00BSQNRD01) at its auction next Wednesday, January 8.
