Canada’s Tariffs Take Effect & Summer Box Office Boom

SPEAKER_1 (0:00)

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Hanna Horvath (0:31)

Oil prices are rising to another high just as the trade war fight heats up. We'll explore what it means for markets and the Fed.

Dylan Lewis (0:38)

And we discuss why pipelines matter so much for drug companies and movie theaters.

Hanna Horvath (0:42)

For Tuesday, September 8th, it's Brew Markets Daily. I'm Hanna Horvath.

Dylan Lewis (0:45)

And I'm Dylan Lewis. Let's get moving and grooving.

Hanna Horvath (0:49)

We are back from a long weekend and Wall Street has a lot to catch up on. Stocks are lower today as investors weigh rising tensions in the Middle East, another jump in oil prices, and a growing trade fight with Canada.

Let's start with oil. Brent crude futures, known as an international oil benchmark, near $99 a barrel today, its highest level since July. That comes after Houthi attacks temporarily disrupted off durations at a Saudi energy facility, while the broader conflict with Iran continues to slow shipping through the Strait of Hormuz. Consumers are already starting to feel that pain at the pump. Gas hit a national average of $4.15 a gallon on Labor Day, which is the highest price we've ever seen for the holiday a year ago is closer to $3.20.

Diesel prices are even more striking. Those hit a record of about $5.90 a gallon over the weekend, up nearly 60% from a year ago. And diesel matters even if you don't drive, because that is what powers a huge amount of the stuff that is moving around the economy, from trucks to farm and construction equipment. So when diesel gets more expensive, moving everything from groceries to clothes also gets a lot more expensive. So Dylan, when you see oil and fuel prices at these levels, what does that mean for companies and the broader market?

Dylan Lewis (2:01)

Yeah, it feels like the story for the past few years that everyone has to kind of remind themselves of is that input costs really matter. Tariffs and some of the geopolitical tensions have really put them front and center, because they affect almost every industry. And gas is one of the biggest input costs. It is probably involved in the production of almost everything. If it's not involved in the production, it's involved in the shipping or the transportation, or it's involved in the processing on the waste side or recycling.

Oil is basically the oxygen of the economy. It makes stuff go.

And I think a very illustrative example of how this starts to trickle down throughout the other parts of the economy. You zoom in on something like a single semi-truck. Their gas tanks can hold 100 to 150 gallons of fuel. Bigger trucks have two of those tanks. So the difference between diesel being $3.70 a gallon and $5.90 a gallon is hundreds of dollars for each tank, each fill up. Trucking companies are not going to eat those costs. So the elevated prices either mean tighter margins for the companies that are contracting that trucking or higher costs for consumers or very likely both.

Hanna Horvath (3:04)

Yeah, and this is not exactly great timing because energy is not the only cost pressure that is showing up this week. Canada's retaliatory tariffs officially went into effect at midnight. And I know, I know more tariff talk, but bear with us. Canada is putting tariffs of 15% to 50% on roughly $20 billion worth of American goods, including things like steel, furniture, clothing and electronics. It is Canada's dollar for dollar response after the US put tariffs on roughly $20 billion worth of Canadian goods last month. So I want to keep the scale in perspective here because the US and Canada trade more than $700 billion worth of goods in a year. So this only hits a fraction of that. But the bigger concern for investors is what happens if this keeps escalating. For American companies that are selling into Canada, those products just got a lot more expensive. And on this side of the border, US tariffs on Canadian imports can mean higher costs for American businesses as well. So you've essentially got higher energy costs coming through one side of the economy and more trade costs coming through another.

Dylan Lewis (4:02)

And I think one of the tricky things about this, Hanna, is neither of those problems really seem to have near term solutions, or at least they won't have solutions before the Fed's next meeting.