Canada

•    After last week’s news that Canada’s economy contracted in Q1, Friday’s positive job reports in both Canada and the U.S. helped underpin another leg up in bond yields. The Loonie didn’t gain any ground, however, as U.S. dollar strength ruled the day.

•    Earlier this week, Canada’s smaller trade deficit seemed positive, but the headline belied a loss of momentum in both export and import volumes.

•    Canada’s economy generated a surprising 59K new jobs in May, with generally positive underlying details. However, the story of regional divergence along oil producing-consuming lines is evident in Alberta’s rising unemployment rate, while Ontario’s continues to trend down.

United States

•    In the press conference following this week’s ECB meeting, Mario Draghi stated that the market should get used to periods of high volatility, implying that he wouldn’t be leaning against the recent pickup in bond yields. This led to a powerful sell-off in European fixed income, with Treasuries following in tow.

•    Data from the ISM surveys was mixed, while the Beige Book indicated a steady pace of expansion from the first quarter. Still, there were signs of optimism with May auto sales reaching a ten-year high of 17.7 million units.

•    Optimism received another boost on Friday, with non-farm payrolls rising 280k in May, smashing expectations for 226k. Average hourly earnings rose 0.3% month over month, and combined with the growth in payrolls, aggregate wages expanded a robust 0.6% on the month.

Thank you TD Bank for your insight.

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Market Commentary

Interest rates remain squarely in the crosshairs of market watchers. The latest, very weak, GDP numbers have even casual observers perking up over the prospect of another Bank of Canada rate cut.

The 0.6% contraction in first quarter GDP is significantly worse than forecast, but it was not wholly unexpected. Bank Governor Stephen Poloz had said Q1 GDP would be “appalling”. It was a key reason for the surprise rate cut in January, which Poloz called “insurance” against falling oil prices. Since then oil prices have recovered and the consensus for Q2, although reduced, is brighter.

The BoC’s next policy meeting is on July 15th. While it is going to be much more interesting, the general feeling seems to be that if a cut is coming, it will not be until the October 21st gathering.

Given that Canadians are set to go to the polls in a federal election on October 19th, second quarter GDP and the September 9th policy meeting should also be drawing at lot of attention.

Thank you First National for your insight.