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BMO on The Day, Week Ahead in Canada

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Bank of Canada Senior Deputy Governor Carolyn Rogers will appear before the House of Commons Standing Committee on Public Accounts in Ottawa at 12 p.m. ET Monday, said Bank of Montreal (BMO).

Monday at 9:30 a.m. ET, the S&P Global Canada Manufacturing PMI for May will be released.

The data run this week culminates with the Labour Force Survey (LFS) on Friday, noted the bank. Canada is expected to add 8,000 jobs in May, leaving the unemployment rate unchanged at 6.9%.

The Canadian economy contracted 0.1% annualized in Q1, which throws some cold water on the 2026 growth call. BMO now has real gross domestic product growth at 0.5% for the year, down from 1.0% previously.

If you read all about the "technical recession" over the weekend, Canada just isn't there yet, stated the bank. Suffice it to say that the economy has been slumping long enough -- a full year -- but hasn't contracted deep enough, nor have the declines been widespread enough to stack up to a traditional recession.

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Canada's Economy Stalls Ahead of Trade Negotiations Wth The U.S., Says TD

Canadian Q1 gross domestic product showed the economy effectively stalled, contracting 0.1% quarter-over-quarter annualized, undershooting expectations, said TD after Friday's GDP data.The weakness was broad-based, noted the bank. Strong import growth dragged down the top-line figure, but final domestic demand declined again and continues to proceed in "fits and starts." Looking through the volatility final domestic demand is up 1.3%, but this is still a below-trend figure, and consistent with an economy operating below capacity.Overall, the economy continues to muddle along with limited forward momentum, stated TD. While early Q2 indicators suggest some rebound, with April GDP tracking higher, the broader trend still points to slack in the economy and subdued growth.Canada's lackluster growth performance puts the focus squarely on the upcoming CUSMA trade deal review, according to the bank. The economy has operated under the cloud of uncertain United States market access ever since the first tranche of tariffs was announced last year.On Monday, the three countries are due to notify each other of what changes they want in the agreement, with discussions to follow, pointed out TD. The U.S. and Mexico have already scheduled formal negotiating rounds. Minister for U.S.-Canada Trade Dominic Leblanc is expected to travel to Washington this week, but the timelines for negotiations remain unclear.To find some insights on the negotiations, Prime Minister Mark Carney's speech in New York last week highlighted Canada's strategy. He called for a "new partnership" with the U.S., while simultaneously positioning Canada's goal to establish itself as an "energy superpower."Recent foreign direct investment data suggest there might be something to the strategy, added the bank. Q1 inflows were reported at $22 billion, or $4 billion less than in Q4, and investments in the energy and mining sector were $14.7 billion in the quarter. While this data is volatile, it aligns with Canada's strategy to leverage its resource base and attract long-term capital.The Canadian economy continues to muddle along under a cloud of trade uncertainty. The hope is that in the coming months, clarity and stability on the trade relationship with the U.S. will emerge. Increased economic certainty, together with the push to attract global capital to invest in Canada, can lay the foundation for productivity-powered economic growth.

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Treasury

RBC Previews This Week's Labor Report in Canada

Canada's economy had a soft start to 2026, with real gross domestic product growth disappointing consensus expectations, while GDP was broadly unchanged in Q1 and the unemployment rate edged higher, RBC said.Still, the bank expects signs of stabilizing labor demand in the summer and hiring for the federal government census -- typically 15,000 jobs -- to have driven moderate job growth of about 25,000 in May, while the unemployment rate likely ticked lower to 6.8%.This improvement follows large counts of job losses earlier this year, but also hidden signs of resilience in the labor market. Critically, layoffs have been limited to heavily trade-exposed sectors and have been declining in total since October 2025. Instead, unemployment increases in 2026 largely reflected longer job searches for new market entrants due to persistently weak hiring, stated RBC.Canada is scheduled to release May's Labour Force Survey (LFS) on Friday.That is little comfort for those looking for work, but it's not the kind of labor market softening typically seen, for example, at the beginning of a recession, pointed out the bank.In a recent speech, the Bank of Canada's Deputy Governor Nicolas Vincent also characterized the job market as "low hire, low fire," and highlighted a high share of people who have been out of work for a long time, and particularly high unemployment among young job seekers.Overall, hiring intentions took a step back after the Middle East conflict injected new uncertainty into the business operating environment. Total job postings on Indeed.com, however, showed signs of resilience, with job postings starting to bounce back in May after declining in March and April.Looking ahead, elevated oil prices remain a key risk to the Canadian economy and labor market, added RBC. Sharply higher oil prices raise revenue flowing into oil-producing regions, but could also divert business priorities from hiring toward margin preservation as fuel costs surge.Meanwhile, concerns about consumer demand -- with higher gasoline prices cutting into household purchasing power -- could also limit businesses' ability to pass on those cost increases while remaining competitive. Though early consumer spending data show limited signs of demand destruction so far, according to the bank.RBC will continue to monitor conditions as elevated oil prices persist. However, with household demand broadly holding up right now, the bank's base case forecast remains cautiously optimistic for more stabilization in hiring in the summer, and a gradual decline in the unemployment rate toward the end of this year.

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Treasury

Commerzbank on Overnight News

Commerzbank in its "European Sunrise" note of Monday highlighted:Markets: United States Treasuries decline, then turn sideways in Asia. Asian stocks mixed while e-minis recover. The euro (EUR) weakens. Brent hovers around US$93/barrel.Fed: Federal Reserve Governor Jerome Powell sees risk for Fed credibility if any president were free to dismiss Fed officials over policy disagreement. Federal Reserve Vice Chair for Supervision Michelle Bowman says it is too soon to judge the inflationary impact of the Iran war.AI: Federal Reserve Bank of New York President John Williams says "demand for macro economists will still be vibrant."Iran war: President Donald Trump urges calm on Iran deal, says "it will all work out well," after he sends tougher terms to Iran for peace framework, and says most of the deal is about the nuclear program. Iran is preparing counter-proposals to the U.S. draft framework and rejected suggestions it is close to accepting Trump's terms. The U.S. military strikes Iranian radar and drone control sites after Iran shot down a U.S. drone.==EUROPE:ECB: Governing Council member (GC) Isabel Schnabel says risk of de-anchoring inflation expectations is rising and the European Central Bank can no longer "look through" energy shock. GC member Alvaro Santos Pereira urges the ECB to act sooner rather than later.ECB: Schnabel says stablecoins can trigger runs and fire sales, argues in favor of CBDC (speech).BoE: Bank of England policymaker Catherine Mann warns the "good luck" of Great Moderation has run out.Germany: Government so far failed to meet targets for the special fund for infrastructure, as 24 billion euros were disbursed in 2025 versus the 37.2 billion euros plan, and only 26 of 109 milestones planned for 2026 have been achieved by May (HB). Hendrik Wust calls speculation he will replace Prime Minister Friedrich Merz "nonsense."EU: German Finance Minister Lars Klingbeil says Capital Markets Union is a game-changer for securing increased investment, after the six largest nations agree on plan to implement CMU. Germany wants EU-wide deal on CMU plan by year-end.Ratings: S&P conducted an annual review for France without rating changes. DBRS confirms Spain at A (high)/stable. S&P affirms Latvia and Lithuania at A/stable. Scope affirms Bulgaria at A-/stable.SoftBank plans 75 billion euros of Artificial Intelligence (AI) investments in France.==ASIA:China: Manufacturing PMI slips to 50 as expected, service PMI improves more than expected to 50.1. RatingDog manufacturing PMI falls less than expected.

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