Author: Consultant

• Nonfarm payrolls increased 209,000 in June, below the consensus estimate for 240,000.
• The unemployment rate was 3.6%, down 0.1 percentage point. However, a more encompassing jobless level rose to 6.9%.
• Government hiring led the job gains, followed by health care, social assistance and construction.
• Wages rose 4.4% from a year ago, slightly higher than expectations.

https://www.cnbc.com/2023/07/07/jobs-report-june-2023-.html

Canada’s unemployment rate ticked up to 5.4 per cent in June – the highest it’s been in over a year.

It marked the second month in a row the unemployment rate has risen as economists watch for softening in the labour market amid high interest rates.

Statistics Canada said Friday the increase came as the economy added 60,000 jobs in June, driven by gains in full-time work.

But with more people searching for work and Canada’s population growing, the unemployment rate climbed higher.

Job gains were concentrated in wholesale and retail trade, manufacturing, health care and social assistance and transportation and warehousing.

The loosening of the labour market likely comes as good news to the Bank of Canada, which is looking for signs that its aggressive rate hikes are working to cool the economy.

The central bank has said repeatedly that Canada’s hot labour market is contributing to high inflation, raising concerns about the pace of wage growth in particular.

However, Statistics Canada said wage growth also softened last month, rising 4.2 per cent from a year ago. That compared with a year-over-year gain of 5.1 per cent in May.

The central bank is gearing up for its interest rate decision next week. Its move to raise interest rates last month has led many forecasters to expect another rate hike on July 12.

The central bank hasn’t given any clear indication of its plans, saying it will make its decision based on the economic data.

Its key interest rate is at 4.75 per cent, the highest it has been since 2001.

Oil prices rose on Friday and were on track for their second straight weekly gain, as resilient demand resulted in a larger-than-expected fall in U.S. oil stockpiles, offsetting fears of higher U.S. interest rates.

Brent crude futures were up 36 cents, or 0.5%, at $76.88 a barrel at 1114 GMT, while U.S. West Texas Intermediate crude gained 35 cents, or 0.5%, to $72.15 a barrel.

Both benchmarks were set to gain over 2% on the week.

Brent’s six-month backwardation, where nearby contracts trade above later ones indicating supply tightness, has risen sharply in recent sessions and touched a one-month high on Friday.

But Brent is still trading around $10 a barrel below April peaks, and has remained between around $71 and $79 a barrel since early May in the face of interest rate hikes and weak Chinese economic data.

U.S. crude stocks fell more than expected and gasoline inventories posted a large draw, the Energy Information Administration said on Thursday. [EIA/S]

Top oil exporters Saudi Arabia and Russia this week have also announced fresh output cuts bringing total cuts by OPEC and its allies to around five million barrels per day (bpd), equating to 5% of global oil demand.

OPEC will likely maintain an upbeat view on oil demand growth for next year, sources close to OPEC said.

However, oil price gains were capped by strengthening expectations that the U.S. Federal Reserve is likely to raise interest rates at its July 25-26 meeting, which could weigh on growth and thus oil demand.

The number of Americans filing new claims for unemployment benefits increased moderately last week, while private payrolls surged in June, data showed on Thursday.

More U.S. employment data is due at 1230 GMT.

“For as long as market participants fear that oil demand growth will slow considerably as interest rates are being raised and economic data remain disappointing in China … they are unlikely to share the concerns of any significant market tightening,” Commerzbank analysts wrote in a note.

Investors will look for cues on rate paths from U.S. and Chinese inflation data next week.

Canada’s trade balance for goods swung unexpectedly into negative territory in May, producing the largest trade deficit since October, 2020, and acting as an anchor on economic growth in the second quarter.

Led by a decline in energy and agriculture exports, Canada posted a $3.4-billion merchandise trade deficit in May, down from a revised $894-million surplus in April, Statistics Canada reported Thursday. Bay Street forecasters had expected a $1.15-billion surplus that month.

Goods exports declined 3.8 per cent due to both falling prices and lower shipments. In volume terms, exports decreased 2.5 per cent. Meanwhile, imports were up 3 per cent overall and 3.5 per cent in volume terms. (A trade deficit occurs when imports exceed exports).

Trade has been a meaningful contributor to GDP growth so far this year, and a decline in exports could weigh on economic momentum in the second quarter, Stephen Brown, deputy chief North America economist at Capital Economics, wrote in a note to clients.

“The slump in export volumes presents downside risks to the preliminary estimate that GDP rose strongly in May, and suggests that the earlier boost from easing supply shortages is now largely behind us,” Mr. Brown wrote. “With the survey-based orders evidence still weak, exports seem likely to fall further in the coming quarters.”

The drop in exports was led by oil and food. Crude oil exports fell 8.3 per cent – largely on lower prices – while exports of farm, fishing and intermediate food products decreased 13.4 per cent. Worldwide demand for Canadian wheat and canola has slumped in recent months, Statscan noted, yielding lower prices and incentivizing farmers to store their harvests and wait for market conditions to improve.

Meanwhile, imports remained robust, highlighting the continuing strength of Canadian consumers. Vehicle and car part imports rose 4.5 per cent in May, reflecting improving auto-manufacturing supply chains and sustained demand for new vehicles.

Metal imports also jumped thanks to unusually large shipments of silver from Britain to Canada. “Like gold, demand for silver tends to increase in times of economic uncertainty,” Statscan said.

Canadian trade faces headwinds over the summer and into the fall. While the country’s major trading partners have so far avoided a recession, central banks around the world continue to raise interest rates to slow economic growth and curb inflation. Most forecasters expect the U.S. economy – the destination for most Canadian exports – to slow in the second half of the year.

The continuing strikes at ports in British Columbia could also weigh on trade, Bank of Montreal senior economist Robert Kavcic said in a note to clients.

“Roughly 20 per cent of total Canadian goods trade runs through those ports, which presents the possibility of [a] short-term growth hiccup, as well as another (hopefully very temporary) supply-chain disruption. Major outbound shipments include grain, forest products and potash; large inbound volumes include consumer goods and autos,” Mr. Kavcic wrote.

Gold prices drifted lower on Wednesday as the dollar moved up ahead of the release of the minutes of the Federal Reserve’s latest monetary policy meeting.

Still, concerns about economic growth and weakness in stock markets supported the safe haven metal and limited its downside.

The dollar index climbed to 103.30, gaining about 0.25%.

Gold futures for August ended lower by $2.40 at $1,927.10 an ounce.

Silver futures for September ended up $0.290 at $23.402 an ounce, while Copper futures for September settled at $3.7685 per pound, down $0.0255 from the previous close.

Data showing China’s services activity expanded at the slowest pace in five months in June added to worries about a faltering post-pandemic recovery in the world’s second-largest economy.

Elsewhere, Eurozone Services PMI was finalized at a 5-month low and the U.K. services PMI showed renewed signs of fragility, suggesting that major economies will fall into recession later this year.

In U.S. economic news, the Commerce Department released a report showing new orders for U.S. manufactured goods increased by much less than expected in the month of May

The Commerce Department said factory orders rose by 0.3% in May after rising by a downwardly revised 0.3% in April. Economists had expected factory orders to climb by 0.8% compared to the 0.4% increase originally reported for the previous month.

Brian Kingston is president and chief executive officer of the Canadian Vehicle Manufacturers’ Association.

Recent economic indicators are starting to point in the wrong direction, with businesses anticipating slow growth ahead. According to the Bank of Canada’s latest Business Outlook Survey, sales growth will be weak over the next year, investment intentions have declined and concerns with inflation remain elevated.

One of the few bright spots in the survey is an improvement in supply chains allowing companies to work through backlogs, including in the auto industry. But now that bright spot is rapidly fading, with dire economic consequences.

Labour strife at Canada’s largest port threatens supply chain improvements and could send the economy into the ditch. On Canada Day, longshore workers at B.C. ports, including the Port of Vancouver, launched a strike – crippling a key component of the country’s transportation infrastructure network.

For the Canadian auto sector, which is responsible for an estimated 500,000 middle-class jobs, B.C. ports are particularly important. Vancouver is a key transit point for parts and finished vehicles produced and sold in Canada and North America. Last year, 333,734 vehicles were handled by the port, representing nearly a quarter of total Canadian vehicle sales. It also serves as a key transit point for materials needed to build electric vehicle (EV) batteries.

In addition, the port is a critical hub for wheat and canola, fertilizers, minerals, fuels and forest products. It is approximately the same size as Canada’s next five-largest ports combined, handling one-third of goods traded outside North America. Port activities sustain an estimated 115,300 jobs, $7-billion in wages and $11.9-billion in GDP across Canada.

The stoppage is forcing the automotive companies that depend on the port to reroute shipments, adding significant costs and increasing uncertainty at the worst possible time. For Canadians, this means higher vehicle prices and delays just as the sector was rebounding from pandemic-related inventory shortages.

And if the strike continues much longer, auto assemblers may face another wave of plant closures due to a lack of parts. This would be particularly detrimental as the auto sector is one of the key drivers of the Canadian economy. Motor vehicles and parts exports were up 16.2 per cent year over year in April and accounted for one-third of export growth.

Perhaps most concerning is the damage being done to Canada’s reputation on the world stage as a reliable jurisdiction for the production and movement of goods. This job action is on top of recent rail disruptions, bridge blockades and a strike at the Port of Montreal. According to a survey by Canadian Manufacturers & Exporters conducted last year, manufacturers have lost nearly $10.5-billion in sales because of disruptions in the supply chain, and are experiencing nearly $1-billion in increased costs.

Transportation and logistics companies that rearrange supply chains to limit exposure to an increasingly unreliable Canadian network may simply never return. For businesses in the automotive sector that depend on fast and efficient logistics, Canada’s competitiveness for job-creating investment is under question.

This is particularly problematic amid the auto industry’s once-in-a-century transformation to electrification. Canada has attracted more than $25-billion in new auto investment over the past three years, most of which is dedicated to assembling EVs and building a North American battery supply chain. Failing to address increasingly frequent transportation infrastructure disruptions is hurting our ambition to become an EV superpower.

The longer the strike at B.C. ports goes on, the more significant the damage will be to Canada’s fragile economy. Now is the time for the federal government to work with the parties and bring it to an immediate end. Delays are not affordable and not in the best interests of the country or our economy.

The strike at four British Columbia ports is putting more pressure on an already-stressed international potash shipping network, with overseas farmers potentially caught in the crosshair.

Nutrien Ltd NTR-T +0.25%increase, The Mosaic Company and K+S Potash Canada operate large potash mines in Saskatchewan, and all rely heavily on shipping the agricultural commodity overseas from the West Coast.

Canpotex Ltd., which handles potash shipments for Saskatoon-based Nutrien Ltd. and Tampa-based Mosaic, sends 70 per cent of its international shipments through the Port of Vancouver, one of four facilities affected by the strike.

“The timing couldn’t be worse,” said Natashia Stinka, spokesperson for Canpotex in an e-mail to The Globe and Mail. “Shipments are time sensitive for crops’ growing seasons and our overseas markets are counting on Canpotex to reliably deliver the potash they need.”

About 7,400 members of The International Longshore & Warehouse Union Canada (ILWU) went on strike on Saturday at the Port of Vancouver and three smaller ports in the province, after failing to reach terms on a new collective agreement with management.

Canpotex has fewer options than in the past to divert shipments from Vancouver to other ports. Portland, Ore., its other major facility on the West Coast, was knocked out of potash service in May, after a structural failure with its conveyor system.

Nutrien chief executive Ken Seitz said at the time that repairing the damage would take months, and that Canpotex in the interim would look at sending the commodity to alternative ports.

“With the facility down in the Pacific Northwest, they’ve been rerouting volumes already, but having the port of Vancouver down because of the strike takes out one of those export valves,” said Steve Hansen, analyst with Raymond James Ltd.

Nutrien plans major potash production hike as war in Ukraine exerts relentless pressure on global supplies

One of the last remaining options that Canpotex has at its disposal is sending its potash across the country to the port of Saint John. But the rail trip from mines in Saskatchewan is significantly longer and more expensive at 4,300 kilometres, than going west to Portland or Vancouver. It’s unclear how much extra slack Saint John had already picked up as a result of the outage in Portland. It’s also unclear whether Saint John can handle added capacity resulting from the B.C. strike.

Both Nutrien and Canpotex declined to provide any more details and would not grant interviews with executives.

Nutrien’s Mr. Seitz has acknowledged that a longer-term solution that might help alleviate port duress on the West Coast could be the construction of a new export terminal in the U.S. Gulf. Such a facility would also provide a more direct shipping route to Brazil, a major customer for Canpotex.

Canadian Pacific Kansas City Ltd., CP-N -1.58%decrease which is the carrier for most of the potash shipped from Nutrien’s mines, recently talked up the possibility of Port Arthur, Tex., as a candidate for the facility.

Analysts meanwhile are bullish that shipping from Texas could be beneficial for Nutrien.

“This might actually end up being a decent option going forward for South America, as shipment to Saint John, New Brunswick is relatively costly for both rail and ocean,” Joel Jackson, analyst with BMO Capital Markets, wrote in a note to clients in May.

As Canpotex grapples with challenges in getting Canadian potash shipped overseas, Nutrien continues to trudge through a difficult patch.

Despite worries over the potential for a global shortage of potash over the past 18 months, the market instead has wobbled.

In early 2022, Russia, the world’s second-largest potash producer was forced to slash international shipments after the imposition of sanctions in the wake of its invasion of Ukraine. Belarus, the third-biggest producer, had already been subject to sanctions before the war began. But production cuts ended up being short-lived, with both countries finding alternative routes to subvert the sanctions and finding willing buyers in places like China.

This year, with ample global supply on the market, Mr. Hansen says that large global buyers from southeast Asia, India and China are mostly sitting on the sidelines and biding their time.

“Behaviourally they watch potash prices go down every week, by a couple of dollars. And so they’re just waiting to buy at a lower price,” he said.

The price of Nutrien’s Toronto Stock Exchange-listed shares have fallen by 20 per cent this year.

Saskatchewan is the world’s largest producer of potash, providing approximately 37 per cent of global supply, according to the province’s mining association.

Oil prices moved little in early Asian trade on Thursday as the prospect of tighter supply with output cuts from Saudi Arabia and Russia and a bigger-than-expected drop in U.S. crude stocks were offset by worries over a sluggish demand recovery in China.

Brent crude futures was down 2 cents to $76.63 a barrel by 0038 GMT after settling up 0.5% the previous day.

U.S. West Texas Intermediate crude was at $71.90 a barrel, up 11 cents, or 0.2%, after closing 2.9% higher in post-holiday trade on Wednesday to catch up with Brent’s gains earlier in the week.

“Saudi’s supply curb announcement and expectations for a possible further reduction are supporting oil prices,” said Tatsufumi Okoshi, senior economist at Nomura Securities, adding a bigger-than-expected drop in U.S. crude stocks also supported sentiment.

“Still, the upside looks to be limited due to uncertainty over the pace of China’s economic growth and fuel demand recovery,” he said, predicting WTI would remain in a range of $65 to $75 a barrel going forward.

U.S. crude stocks fell by about 4.4 million barrels in the week ended June 30, while gasoline and distillate inventories rose, according to market sources citing American Petroleum Institute figures. Analysts had expected a drop in crude inventories of about 1 million barrels in a Reuters poll.

Government data on U.S. inventories is due at 11:00 a.m. EDT, or 1500 GMT, on Thursday.

On Wednesday, Saudi energy minister Prince Abdulaziz bin Salman said that Russia-Saudi oil cooperation is still going strong as part of the OPEC+ alliance, which will do “whatever necessary” to support the market.

Oil prices traded at around their two-week highs, but are down 10% so far this year largely because of demand concerns over China’s slow economic recovery after the lifting of pandemic restrictions, on top of global macroeconomic headwinds and interest rate hikes by central banks.

Further weighing on the demand outlook, China’s services activity expanded at the slowest pace in five months in June, a private-sector survey showed on Wednesday, as weakening demand weighed on post-pandemic recovery momentum.