This Week's Canada Jobs Report in Focus After Friday's Poor Q1 GDP, Says SocGen

Canada's Manufacturing PMI Slips, But Still in Positive Territory in May; Cost Pressures Intensify, Says S&P Global

Canada's manufacturing sector growth was sustained in May as output, new orders and employment all increased, said S&P Global on Monday.The seasonally adjusted S&P Global Canada Manufacturing Purchasing Managers' Index (PMI), a composite index designed to provide a summary of operating conditions in manufacturing, remained in positive territory during May for a second successive month.Although falling to 52.9 from 53.3 in April, the rate of growth remained "solid" and above its historical average, said S&P Global.Manufacturing sector expansion was underpinned by further lifts in both output and new orders amid reports of higher demand and success in securing new customers, while employment growth was sustained as firms noted some pressure on current capacity, it added.However, S&P Global also noted, price indices shifted upwards, hitting a near four-year high, whilst input delivery times deteriorated markedly as the Middle East conflict weighed heavily on supply chains.Confidence in the outlook subsequently remained subdued, as manufacturers signaled a considerable and accelerated increase in input costs over the month, it said.Linked to the war in Iran and the inflationary impact this has had on global energy and oil prices, manufacturers reported the steepest increase in overall input costs since July 2022, S&P Global noted. Suppliers were reported to have generally increased their charges, whilst freight and transportation costs also rose. United States tariffs were still noted as a factor driving up input expenses, it added. In response, manufacturers similarly raised their own selling prices sharply, according to S&P Global.Finally, staffing levels were increased for a second successive month and, although modest, the rate of growth was the strongest since October 2024, it noted.

Bank of Canada Sees Financial Stability Risks From Housing, Valuations, notes Rosenberg Research

The Bank of Canada's Financial Stability Report of last week highlighted warning signs for the economy, especially from the housing sector, overextended asset valuations, and global turbulence, says Rosenberg Research"The tone was mostly downbeat -- emphasizing deteriorating macro conditions and the associated tail risks, while highlighting some vulnerabilities to the financial system that could be exposed if a series of risks collide simultaneously," adds the research.Robert Embree at Rosenberg Research notes two key takeaways from the FSR. First, there are major macro pressures in the Canadian economy, especially from housing and mortgage renewals, he said. The second is the resilience of the banking sector, though one would be hard-pressed to find a statement about Canada's banking sector that didn't highlight its resilience, he added.This supports one of Rosenberg's key investment calls right now: it is long the front end of the Canadian bond curve, estimating slow growth and a pricing out of rate hike expectations.The BoC highlighted downside risks to growth via the tag-team of the energy price shock and trade uncertainty, though housing concerns also featured prominently, the research noted.On the current run-up in mortgage rates, it means that homeowners renewing in 2026 will face higher rates than most of those who renewed last year, and are facing a huge jump up from the low interest rates they originally borrowed at in 2021. As a consequence, the mortgage reset cycle is intensifying as a macro headwind, said the research."The BoC believes that the household sector has been resilient because employment has been relatively stable in the last year. That said, given the weakness in the labor market over the past three months, we'd advise keeping the adverse scenarios close by. The risk is that a lethal combination of weak labor markets, falling home prices, and high debt levels could send household balance sheets into a tailspin and cause a sharp retrenchment in consumer spending," the research added.The BoC also believes that financial conditions could face risk re-pricing in light of the macro backdrop, the research noted.According to the research, the BoC appears far more concerned about macroeconomic risks than institution-level vulnerabilities, stating that "even under a severe stress-test scenario, large banks would remain resilient" with the capacity to absorb shocks.Given the large number of potential challenges that are out there, Rosenberg feels quite comfortable seeing value in the short end of the Canada curve.

Brief: S&P Global Canada Manufacturing PMI for May Signals Cost Pressures Intensify