BUZZ-Trade war will negatively impact Canadian bank stocks, Scotiabank says

Scotiabank says the first order impact of the trade war will be on Canadian bank valuations coupled with downward revisions to profit expectations for the sector

U.S. President Donald Trump on Saturday slapped sweeping tariffs on Mexico, Canada and China, igniting a trade war that could hurt global growth

Canada and Mexico, the top two U.S. trading partners, have vowed retaliatory tariffs

Brokerage says even if tariffs end up being temporary, the implications of the trade war will be lingering for a long time

Adds that the trade war requires a structural re-tooling of Canadian economy that finally addresses lagging productivity and over reliance on the U.S. as a trading partner

Scotiabank says bank investors need to be aware of the risk that any fiscal support may come at a price for the sector, pointing towards the "Canada Recovery Dividend (CRD)"

The CRD was a one-time tax levied on the banks and life insurers to help support Canada's broader recovery from the COVID-19 pandemic

Banks had been benefiting from policy easing under a soft-landing scenario, but a looming recession makes that calculus more complicated, Scotiabank says