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Global equity markets finished higher over the week, which ended on April 2 in North America. Hopes that the end of the war in the Middle East could be near lifted investor enthusiasm. Despite military strikes continuing, the U.S. and Iran appear to be communicating but have not yet been able to reach an agreement for a ceasefire. U.S. President Donald Trump said the U.S. would continue to strike Iran but also said diplomatic efforts to end the war would continue. There is still plenty of uncertainty for investors. In Canada, the S&P/TSX Composite Index advanced, led by the health care sector. U.S. equities also rose over the week. Yields on 10-year government bonds in Canada and the U.S. declined. The price of oil finished higher over the week ended April 2, as did the price of gold.
Canadian economy solid before Middle East tensions flare
Canada’s economy expanded by 0.1% in January, marking its second consecutive expansion after posting no growth in November. Contributing to growth were improvements in activity in the construction, retail and mining industries. Conversely, a drop in wholesale trade and transportation detracted from growth.
Statistics Canada estimated that Canada’s economy grew by another 0.2% in February.
Moving into March, Canada’s manufacturing sector activity slowed, hindered by weaker new orders and export orders, which dragged down output.
Canada’s economy contracted in the final quarter of 2025 but appears to be on relatively stable ground over the first couple months of 2026. However, the outlook is clouded in response to the conflict in the Middle East, which has pushed up oil prices and the threat of inflation.
The slowdown in Canada’s manufacturing activity in March may be indicative of a pullback in demand amid so much economic uncertainty.
U.S. sees higher retail spending in February
Retail sales in the U.S. increased by 0.6% in February, rebounding from the 0.1% decline in the previous month. February’s increase also topped the 0.5% increase economists had expected.
Sales were relatively broad-based, with notable increases at department stores, health stores and at motor vehicles and parts dealers. On the other hand, sales dropped at food and beverage retailers.
On a year-over-year basis, retail sales rose by 3.7% in February, which was its largest increase since September 2025.
Meanwhile, a report from ADP showed that private businesses in the U.S. added 62,000 jobs in March, down from February. A separate labour market report said that job openings dropped to 6.88 million in February from 7.24 million in the previous month.
February’s retail sales report was encouraging after the drop in January. There is concern that spending could pull back in response to higher prices, particularly for energy, and a low hiring environment.
Higher energy costs push up European inflation
According to a flash estimate, Europe’s annual inflation rate accelerated to 2.5% in March from 1.9% in February. On a monthly basis, consumer prices rose by 1.2% in March, which was their largest increase since October 2022.
March’s increase was driven by a sharp rise in energy costs, suggesting the conflict in the Middle East could be having an immediate impact on prices.
The good news for now in Europe is that inflation seems to be contained to energy prices. The core inflation rate, which excludes more volatile items, softened to 2.3% in March from 2.4% in February.
At a G7 video conference to discuss the war on Iran and energy markets, European Central Bank President Christine Lagarde said the war could have a prolonged impact on global economic activity and prices, countering comments from U.S. Treasury Secretary Scott Bessent, who said the impact would be temporary.
Europe’s economy could be impacted by a prolonged war due to its impact on energy prices.
Higher foreign demand helps China’s manufacturing sector
According to the National Bureau of Statistics of China (NBS), manufacturing activity in China expanded for the first time in three months, growing at its fastest pace since March 2025.
The NBS Manufacturing Purchasing Managers Index rose to 50.4 in March from 49.0 in February, which was also higher than economists’ expectations of 50.1.
The sector benefited from higher export orders, particularly for artificial intelligence-related products. Domestic orders and output also increased over the month.
The news was not all positive for the manufacturing sector in March as input costs rose to their highest levels in four years.
The conflict in the Middle East is already impacting China’s critical manufacturing sector. A prolonged war and higher energy prices could keep pushing input prices higher, which would force Chinese manufacturers to raise selling prices. This might deter foreign and domestic demand, which could drag down output.
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