Related Articles
Treasury
Payrolls Data Signals Further Sign of A Very Weak Labor Market in Canada, Says Rosenberg Research
Canada was on the receiving end of some "very disappointing" industry employment (SEPH) data on Thursday, with it showing a 31,800 job pullback in March on top of a 38,100 contraction the prior month, said Rosenberg Research.The year-over-year trend is flat, noted Rosenberg Research. "There was "no pulse at all" in the workweek, and virtually none in nominal wages for hourly employees."If it wasn't for a 4,300 spike in public sector payrolls and a 1,900 expansion in non-cyclical health & education, the headline decline would have been closer to minus 40,000 -- a number Rosenberg hasn't seen since late 2023.The fact that the most interest-sensitive sectors are "taking it on the chin the most" (construction -4,100 after a like-sized decline in February; -1,90 in the real estate sector for the worst showing since last September; and a "whopping" -3,600 slump in retail, the third straight "drubbing") should serve as a warning to the Bank of Canada to go light on its hawkish rhetoric, said Rosenberg.In a further sign of "uber-weak" labor demand, the job vacancy rate remained stuck at 2.8% for the fourth month in a row, not just scaling the low end of the cyclical range but back to where it was in the fall of 2017 when the BoC was pinning the policy rate at 1.0%, noted Rosenberg.
$$CXY
Treasury
BMO on The Day Ahead in Canada
The Canadian gross domestic product report for Q1 is the key release of Friday, at 8:30 a.m. ET, said Bank of Montreal (BMO).The bank notes that the Canadian economy seemed to regain its footing at the start of the year. BMO expects real GDP to expand 1.5% a.r. in Q1 following a modest contraction in Q4. The bank's call is a touch softer than the flash estimate (+1.7% a.r.).Swings in trade -- like that in March -- can drive larger-than-normal differences between measures of GDP by industry (the flash estimate) and by expenditure (next week's release), stated BMO. Still, spending by governments and consumers drove Q1's recovery, with the latter hanging in there despite a softer labor market and ongoing economic uncertainty.Business investment likely pulled back from a rare increase in Q4, while housing activity continues to struggle in some of the largest regions in the country. Net exports look to drag on growth despite the energy shock, offset by an increase in inventories, although the bank predicts the former may support growth in Q2.In the monthly data, real GDP is expected to grow 0.1% in March, a tenth firmer than the flash estimate, added BMO. Manufacturing and wholesale trade volumes continued to recover from an early-year slump, while hours worked ticked up. On the flip side, weaker retail sales volumes dragged on growth, and Statistics Canada noted that activity declined in mining, quarrying, and oil and natural gas.Elsewhere, home sales continued to struggle as the spring buying season kicked off.Overall, momentum looks to have slowed as geopolitical uncertainty ratcheted even higher in March, pointing to a softer hand-off heading into Q2, according to the bank. While the energy price spike will benefit resource extraction and trade, the broader economy will continue to face the twin headwinds of the energy price shock and tariff uncertainty.BMO will watch the flash estimate for April for a look at how Q2 started.
$$CXY
Treasury
Rate Differentials, Trade Deal Renegotiations Are Weighing on Canadian Dollar, Says ING
Canada releases Q1 gross domestic product data on Friday at 8:30 a.m. ET, said ING.Expectations are for "tepid" 1.5% quarter-over-quarter annualized growth after Q4's grim 0.6% contraction, writes the bank in a note. But such an outdated piece of information will only matter for the Bank of Canada if it "very meaningfully" deviates from consensus.The Canadian dollar (CAD or loonie) took a breather on Friday, but remains a key laggard in the G10 in May, stated ING. In the bank's short-term fair value model, global equities and short-term rate differentials are doing the heavy lifting in driving the pair.Further de-escalation and improved risk sentiment would likely push USD/CAD lower, but relative rates continue to provide an important offset, pointed out ING. Canadian inflation and labor market dynamics argue against any near-term hawkish shift from the BoC, and markets remain more comfortable pricing out Canadian central bank tightening than Federal Reserve tightening.USMCA trade deal renegotiations also remain a key risk for CAD, added the bank. United States Trade Representative Jamieson Greer said this week that issues with Canada are "significant." As in 2020, President Donald Trump may escalate tariff threats ahead of any eventual deal.Even if a new USMCA agreement is ultimately reached, prolonged negotiation uncertainty could weigh on Canadian business sentiment and the labor market, further reducing the likelihood of a BoC hawkish response, according to ING.In the bank's baseline scenario -- which is rather optimistic on Middle East developments -- ING has USD/CAD trading back to 1.37 by the end of June and 1.36 by the end of Q3. That embeds some risk premium on CAD related to USMCA renegotiations, keeping the loonie a laggard relative to other G10 commodity currencies.
$$CAD$$CXY$USD/CAD