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Canada Has "Sclerotic" Demand and Supply Curve in The Economy, Says Rosenberg Research

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Rosenberg Research said it remains amazed that the money market and some corners of Bay Street continue to believe the Bank of Canada will exercise its option from its recent statements and make the next move a rate hike.

Rosenberg Research continues to bet against that view, as does the Canadian dollar (CAD or loonie), which has beaten a path back toward $1.39 after testing $1.3550 in early May -- and that is with a higher oil price.

It's reflective of the state of the Canadian economy, which is close to being graded an "F" with back-to-back mild gross domestic product contractions and a technical recession also evident in productivity, which dipped by 0.5% at an annual rate in Q1 -- consensus was a 0.3% gain -- after receding 0.3% in Q4 of last year, stated Rosenberg.

Outside of the Artificial Intelligence boom, there is absolutely zero vitality in the United States economy, but the situation in Canada is "far more dire," with pronounced weakness both on the demand and supply sides of the economy, added Rosenberg.

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Canada, U.S. Vehicle Sales Momentum "Vulnerable Through Rest of Year", says BMO

Canadian new vehicle sales came in at an estimated 184,000 units in May, with sales falling 1.7% year over year and extending the run of softer comparisons, notes Bank of Montreal (BMO)Hopes that volumes might finally clear 190,000 units, last achieved in May 2019, were again disappointed, despite May typically being the strongest sales month of the year, said the bank.United States light vehicle sales were more resilient, running near 16.2 million units annualized and up 3.1% year over year. While year-over-year comparisons continue to benefit from last spring's tariff-related pull-forward and subsequent payback, the underlying pace of demand has held steady, noted BMO.BMO's takeaway on consumer engagement: Canadian and American consumers "are still hanging on -- but only just". The bank said: "A key buffer remains wealth effects from historically high equity markets, which continue to support discretionary spending among higher-income households that dominate new-vehicle demand. However, elevated fuel prices are increasingly acting as a tax on consumption, siphoning billions of dollars away from discretionary categories like vehicle purchases."With fuel costs elevated and geopolitical risks mounting, any pullback in equity markets would further cloud the outlook, suggesting vehicle sales momentum remains vulnerable through the rest of the year, according to BMO.

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Data in Canada Signals Early-Year Softness, But Underlying Momentum Is Stabilizing, Says Scotiabank

The Canadian economy hit a clear soft patch at the start of 2026, as confirmed by last week's gross domestic product, said Scotiabank.GDP was essentially flat in Q1, coming in below all expectations and pointing to softer underlying demand pressures, noted the bank. This aligns with earlier signals from the labor market, including weak hiring and a rise in unemployment at the start of the year.That said, the headline weakness should be interpreted with "caution," stated Scotiabank. The Q1 print was affected by several temporary factors that materially distorted the signal.Large swings in gold imports should be largely ignored, as should the sharp pullback in government spending, which is likely to reverse in Q2. Encouragingly, the flash estimate for April GDP already points to a meaningful rebound next quarter. Looking ahead, the bank continues to expect activity to firm, supported by fiscal spending and a recovery in export growth.While Scotiabank forecasts growth to average 0.8% in 2026, this headline figure masks a clear reacceleration in underlying momentum.Quarter-on-quarter growth should firm meaningfully as government spending reconnects with planned outlays and the lagged effects of past rate cuts continue to support domestic demand -- particularly in housing, it pointed out.External demand should also become more supportive over time. Export growth is expected to recover, although more convincingly into 2027 as the drag from tariffs fades.As a result, GDP growth is projected to rise to 2.1% in 2027. Taken together, this profile places growth above Scotiabank's estimate of potential -- 1.2% this year and 1.6% in 2027 --allowing the economy to gradually move back into balance by late 2027.Labor market dynamics are consistent with the broad activity narrative. While the unemployment rate has risen by 0.2 p.p. since the start of the year, this still marks an improvement relative to last summer. More importantly, the recent increase likely overstates underlying weakness, as a meaningful share reflects stronger labor force participation.With activity set to firm in the near term, labor demand should stabilize, allowing employment to gradually catch up with growth, added Scotiabank.Commodity prices provide an additional, although partial, tailwind. Elevated oil and non-energy commodity prices should improve Canada's terms of trade and modestly support investment and hiring. However, this support is being offset in part by tightening financial conditions, particularly tightening policy rates and rising long-term government bond yields.On inflation, the recent data has been more encouraging. Core measures have softened since the bank's March update, pointing to some easing in underlying pressures, in line with weaker demand earlier in the year. However, Scotiabank cautions against over-extrapolating this improvement.Pipeline pressures remain "significant." Elevated input costs, both energy and non-energy, are still expected to feed into final prices. The bank views inflation staying close to 3% for the remainder of the year, driven by energy prices, before falling back towards the Bank of Canada target as energy prices normalize.At the same time, geopolitical risks remain elevated and could further disrupt pricing dynamics. In this environment, upside risks to inflation remain material, and Scotiabank estimates the BoC to remain focused on persistence.

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Commerzbank on Overnight News

Commerzbank in its "European Sunrise" note of Thursday highlighted:Markets: United States Treasuries move sideways into the New York close, rise in Asia. E-minis sideways amid softer Asian equities. Key foreign exchange pairs little changed. Brent falls to US$97/barrel.Fed: Federal Reserve's Beige Book shows slight to moderate growth in most districts, with employment little to no change. Most districts show prices rising at a moderate to strong pace.Fed: Federal Reserve Bank of Dallas President Lorie Logan says inflation is taking too long to return to 2%, current policy looks neutral or "loose," higher rates could be needed later this year.Iran war: President Donald Trump says Iran is close to signing a deal in "theory," the Strait of Hormuz would open "immediately" upon the signing of the Memorandum of Understanding. Iranian Foreign Minister Abbas Aragchi says no tangible progress in U.S. talks, but communications not cut off, prepared to resume war if Israel attacks Beirut. Trump privately tells aides he would end the ceasefire if U.S. troops were killed, but still tolerates clashes to avoid wider regional war (WSJ sources).Middle East: Israel and Lebanon agree to implement a ceasefire (Reuters).Russia-Ukraine war: Germany, France and the United Kingdom sketch a plan to engage Russian President Vladimir Putin in peace talks, the plan would also include Ukraine.==ASIA:Japan: Prime Minister Sanae Takaichi says no need for frugality that would put the brakes on the economy, believes markets are watching bond issuance amount.

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