12:08 PM EST, 02/03/2025 (MT Newswires) -- The Toronto Stock Exchange, which opened down 780 points in the early moments, has recovered some of its losses and is now down 220 points at midday.

U.S. President Donald Trump on Saturday signed an executive order that laid a 25% tariff on most Canadian imports, with energy subject to a 10% tariff.

Prime Minister Justin Trudeau responded with a threat of counter tariffs on $30 billion in American goods, with that amount set to rise to $155 billion later in February. The first round of tariffs in both directions are due to start tomorrow, Tuesday.

Oil prices were sharply higher early on Monday after Donald Trump imposed the 10% tariff on energy imports from Canada, the largest source of U.S. oil imports.

Gold traded at a fresh record high despite a surging dollar as safe-haven buying rises. Natural gas prices surged early on Monday after the Trump Administration imposed the 10% tariff on imports from Canada and cold forecasts looked set to boost heating demand.

Of note, before the start of equity trading, Trump on the 'Truth Social' platform said he had just spoken with Canadian PM Trudeau, and added he will speak with him again at 3pm ET, less than 12 hours before the US part of the tariffs become effective.

National Bank is just one of many institutions following and responding to the tariffs saga. Overnight it published a note that looked at interest rates and the stock market here.

National Bank said: "As it stands, the policy rate at 3% is still in the upper half of the assumed neutral range (2.25% to 3.25%). To lessen the fallout on Canada's real economy and to simultaneously buttress financial conditions, we believe there would be a strong argument for an emergency or inter-meeting interest rate cut by the BoC. Note that an emergency action would argue for a larger-than-normal cut of at least 50 bps. Beyond a near-term inter-meeting action, additional relief at the scheduled March and April meetings (25 bps each) would quickly lower the policy target rate to 2% by spring.

"Given that we foresee relatively less economic damage accruing to the U.S., it is unlikely that the FOMC would feel compelled to act as quickly/aggressively as the Bank of Canada. Thus, an already significant degree of monetary policy rate divergence could extend further. Still, we assume the U.S. outlook deteriorates in a trade war, creating scope for roughly 100 bps of FOMC policy rate relief in 2025. Given that financial markets had been discounting only a modest and gradual amount of FOMC easing, longer term Treasury yields would be supported in our revised baseline scenario. We forecast U.S. 10-year yields to reach approximately 4.15% by mid-2025 and 3.9% by year-end."

National Bank added: "This decline would help cushion the impact on equity markets, which we anticipate will undergo a 15-20% correction."

According to a Macquarie strategist, permanent tariffs on US allies "will not be a thing", with tariffs likely to be reversed "before they do serious damage."

Thierry Wizman, Global FX & Rates Strategist at Macquarie, said: "Call us deluded, but we still think that permanent tariffs on the US's allies (Canada, Mexico) will not be a thing. That's because concessions are an 'easier' way to deal with Trump's 'problems' (from a cost-benefit and game-theoretic perspective), and Trump likes to make 'deals'. Political and market pressure will also weigh on the parties to make concessions, as in 2018."