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SocGen's Overnight Economic News Summary

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Societe Generale in its early Monday economic news summary pointed out:

Risk off after military escalation in the Gulf region. Houthis say to impose a complete ban on Israel in the Red Sea. Israeli strike on a petrochemical plant in Iran is the first on energy infrastructure since April 8. Escalation casts doubts over the United States/Iran peace talks and the reopening of the Strait of Hormuz. Eurozone Brent +4.8%, natural gas +5%, 10-year U.S. Treasury yield extends NFP-led gain to 4.57%, resistance 4.60%/4.63%. Germany's Bund opens gap up at 3.055%. Kospi plummets 8.3%.

CFTC positioning: Euro (EUR) net longs raised to 5.8% of OI, yen (JPY) shorts reduced to 25.6%, sterling (GBP) shorts cut to 19.3%, Australian dollar (AUD) longs lowered to 13.7%, Canadian dollar (CAD or loonie) shorts up to 30.8%, Mexico's peso (MXN) longs cut to 26.8%, Nymex longs trimmed to 7.7%.

Week ahead: European Central Bank forecast +25bps on Thursday. U.S. consumer price index and Bank of Canada forecast on hold on Wednesday. The United Kingdom's monthly gross domestic product on Friday. Turkey's central bank is forecast to stay on hold on Thursday. CPI for Norway, China, Brazil, Mexico, Hungary, India, Chile, Romania.

Nikkei -4.4%, EUR 10-year IRS +2bps at 3.10%, Brent crude +4.8% at US$97.5/barrel, Gold -0.5% at US$4,306/oz.

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Treasury

TSX Close: Index Drops More Than 2% as Base Metals Lead a Broad Market Decline

The Toronto Stock Exchange slumped sharply Friday, falling off a day-prior record high as weakness in base metals, technology and energy stocks outweighed gains in other sectors, while investors assessed stronger-than-expected employment data from both Canada and the United States that pushed bond yields higher and impacted expectations for interest-rate cuts.The S&P/TSX Composite Index closed down 803.61 points, or 2.28%, to 34,413.45, with sectors mixed over Friday's session.Base Metals led decliners , down 9.54%, while Energy, Industrials and Information and Technology were down 4.09%, 0.41% and 4.35%, respectively. Health Care led gainers, up 3.77%, with Financial, up 0.04%, Telecom, up 0.28%, Utilities, up 0.44%, and the Battery Metals Index, up 0.11%.Statistics Canada reported that employment rose by 88,000 jobs in May, well above expectations for a gain of about 10,100, while the unemployment rate fell to 6.6% from 6.9% in April. The increase marked the first significant monthly job gain since November 2025.Employment increased among core-aged ,25 to 54 years old, women (+31,000; +0.5% month over month), core-aged men (+25,000; +0.3%), and youth aged 15 to 24 (+22,000; +0.8%). Employment increased in several industries, most notably in construction (+27,000; +1.7% month over month), information, culture and recreation (+19,000; +2.3%), transportation and warehousing (+19,000; +1.7%) and accommodation and food services (+17,000; +1.5%).In contrast to expectations for a "modest" 10,000 increase, Canadian employment rose 88,000 during the month, said Desjardins after the Friday release of Labour Force Survey (LFS). Strength was broad-based across industries and was all in full-time work, noted the bank. Yields across the Government of Canada bond curve are rising, led by the short end, where traders are now pricing in between one and two rate hikes for the remainder of this year, added the bank.That said, given the volatility in the LFS, it's difficult to have much confidence in the signaling power of Friday's reading, according to Desjardins. The bank continues to see downside risks for the Canadian economy, both from fundamental weakness and trade negotiations.Still, other economists remained cautious on the outlook for monetary policy and the Canadian dollar despite the stronger labour market data.UBS noted that April inflation readings came in below market expectations, while the USMCA trade deal negotiations deadline of July 1 is approaching fast. This follows a period of generally weaker economic data from Canada, as evidenced by a sharp decline in economic surprise indexes, writes the bank in a note to clients. Against that backdrop, the bank expects the Bank of Canada to leave its policy rate unchanged at 2.25% at next week's meeting.As a result, UBS expects the Canadian dollar to face near-term headwinds and said it would not be surprised to see USD/CAD trade in a 1.40-1.42 range before eventually stabilizing and moving back toward 1.35.In commodities, gold prices fell sharply after stronger-than-expected U.S. employment data boosted the dollar and treasury yields. Gold for July delivery was last down US$137.20 at US$4,367.80 per ounce, its lowest level since Jan. 2.The U.S. economy added 172,000 jobs in May, exceeding expectations for an increase of 80,000, while the unemployment rate held steady at 4.3%. The data lifted the U.S. dollar and pushed bond yields higher.Oil prices declined but remained elevated amid ongoing uncertainty over the conflict in the Middle East. West Texas Intermediate crude for July delivery settled down US$2.50 at US$90.54 per barrel, while August Brent crude fell US$1.99 to US$93.04.Crude prices were stressed after Israel and Lebanon reached a U.S.-brokered ceasefire agreement, although concerns over regional stability persisted as reports indicated continued military activity in Lebanon and tensions between the United States and Iran remained unresolved. Supply disruptions through the Strait of Hormuz and declining U.S. crude inventories continued to provide underlying support for prices.Also, one of the federal Liberals' flagship affordability measures will land in the bank accounts of eligible Canadians starting Friday, reported The Canadian Press.The program was previously called the GST/HST credit and is usually paid out on a quarterly basis to lower-income households to help them keep pace with the rising cost of living. An estimated 12-million Canadians are eligible for the one-time benefit and amounts vary based on the size of the household, with a single adult with no children getting up to $267 and a couple with two kids receiving a maximum of $533, CP reported.

$^GSPTSE$.GSPTSE$$CXY
Treasury

US Treasury Closing Levels

3:00 Friday vs 3:00 Thursday2yr 99-22 vs 99-30; 4.157% vs 4.048%5yr 99-10 vs 99-23; 4.276% vs 4.186%10yr 98-23 vs 99-06; 4.534% vs 4.476%30yr 100-00 vs 100-10+; 4.998% vs 4.475%2/10 37.479 bps vs 42.555 bps5/30 71.992 bps vs 78.964 bps

Treasury

Canada's Labor Market Shows Signs of Life in May, With A Strong Rebound in Job Creation, Says Desjardins

In contrast to expectations for a "modest" 10,000 increase, Canadian employment rose 88,000 during the month, said Desjardins after the Friday Labour Force Survey (LFS).Strength was broad-based across industries and was all in full-time work, noted the bank. That saw the unemployment rate drop to 6.6% from 6.9% in April.The rebound largely reverses the job losses observed earlier in the year, with the level of employment now just shy of its December 2025 peak, stated Desjardins.Yields across the Government of Canada (GoC) bond curve are rising, led by the short end, where traders are now pricing in between one and two rate hikes for the remainder of this year, added the bank.That said, given the volatility in the LFS, it's difficult to have much confidence in the signaling power of Friday's reading, according to Desjardins.The bank continues to see downside risks for the Canadian economy, both from fundamental weakness and trade negotiations.

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