04:10 PM EST, 01/31/2025 (MT Newswires) -- The Toronto Stock Exchange lost early session gains and failed to extend a three day winning run up to Thursday's record close in losing 275 points or near 1.1% to 25,533.10 on Friday.

The resources heavy index was weighed down by deflated commodity prices, but it mostly fell on the likelihood that U.S. President Trump will go ahead with 25% tariffs on Canadian goods from tomorrow, Saturday, Feb 1.

The White House on Friday denied a report from Reuters that it plans to delay imposition of a 25% tariff on imports from China until March 1 and will impose the levies on Saturday, the Guardian reported. White House press secretary Karoline Leavitt called the report false and the levies will be in place on Feb.1. "25% tariffs on Mexico, 25% tariffs on Canada, and a 10% tariff on China for the illegal fentanyl that they have seen to our country, which has killed 10s of millions of Americans," Leavitt said, according to the news service.

TD Economics in its 'Weekly Bottom Line' note early Friday afternoon said a prolonged U.S.-Canada trade skirmish could dampen growth significantly and lift inflation. It noted the Bank of Canada cut its policy rate by 25 basis points this week, bringing it to 3.0%, and a added "a trade battle would likely warrant more rate cuts than we built into our December baseline."

Among sectors, most were lower, led by Energy (-2.3%) and then Health Care (-1.7%) and Base Metals (-1.4%). The Battery Metals Index was the biggest gainer, (2.15%).

Staying on tariff matters. High profile market watcher David Rosenberg today said even before all the Trump tariff talk started, the BoC was in easing mode and the Canadian dollar under downward pressure "because of one thing: a woeful domestic economic performance". He also noted Real GDP contracted 0.2% in November, fractionally undercutting a consensus forecast of -0.1%. "Of course," Rosenberg wrote, "there will be hemming and hawing over work stoppages and weather conditions during the month, but everyone knew this, and the data still came in below expectations."

Rosenberg noted Statistics Canada is penning in a +0.2% rebound for December, and that would leave real GDP growth at a +1.6% annual rate for Q4, a tad below the +1.8% BoC prediction and far below the central bank's estimate of where potential was in 2024 (+2.5%). "Though this number comes down this year due to tighter immigration rules". So, Rosenberg said, the message is the Canadian economy continues to operate in a state of 'excess supply', and the BoC economists believe this output gap will not close until later in 2026. And the hand-off to Q1 real GDP growth is nearly 0% compared to the "rosy-posy" BoC projection of +2%. "Good luck, Tiff!," he added.

"In other words," Rosenberg wrote, "even if we manage to avoid sinking from the Trump Tariff Titanic, any Taylor Rule estimate would imply that the policy rate inevitably slips not just to, but through the 2% level. The bond market is nowhere close to pricing this in, as an aside. If we get the tariffs, say hello to the zero-lower-bound and a 62-cent (U.S.) Canadian dollar."

In these monthly industry GDP reports, Rosenberg always likes to gauge what the currency-sensitive sectors are doing to see if the Canadian dollar has weakened enough to generate export-related growth. "It ain't happening," he said, noting manufacturing output slipped -0.3% MoM and has declined in five of the past six months. Transportation/warehousing, excluding the effects of the postal strike, dropped -0.6% MoM in the "biggest drubbing" since June 2023. "And for the Bank of Canada, another message: the areas of the economy that are most sensitive to interest rates all but stagnated in the month (+0.1%) in the softest showing since last May. Another confidence boost to our dovish rates call," Rosenberg added.

Of commodities today, West Texas Intermediate closed lower as traders awaited clarity on whether the Trump Administration will include oil imports in its plan to begin imposing 25% tariffs on oil imports from Canada and Mexico on Feb.1. WTI crude oil for March delivery closed down $0.20 to settle at US$72.53 per barrel, while March Brent crude was last seen down $0.06 to US$76.81.

Meanwhile, gold edged down from a record high early on Friday as the dollar rose after a key U.S. inflation measure steadied last month. Gold for April delivery was last seen down $10.30 to US$2,834.90 per ounce, falling off Thursday's record close.