Author: Consultant

Canada’s labour market stumbled in March as the unemployment rate jumped above 6 per cent for the first time in more than two years, the latest sign of a weakening economy.

The country lost a net 2,200 jobs last month, Statistics Canada said Friday, undershooting analyst expectations of 25,000 positions added. The unemployment rate rose to 6.1 per cent from 5.8 per cent in February, and it has risen by a full percentage point over the past year.

The unemployment rate was driven higher in March by an increase of 60,000 people searching for work or on temporary layoff, Statscan said.

The Canadian numbers offered a stark contrast to the United States, which on Friday reported a gain of 303,000 jobs in March, a result that blew past estimates, while its unemployment rate fell a tick to 3.8 per cent. Because of the continuing strength in the U.S. economy, investors are dialling back their expectations that the Federal Reserve will start to lower interest rates in June, viewing it as roughly a 50-50 chance.

In contrast, traders are raising their bets that the Bank of Canada will start to cut rates in June, with July seen as a lock. The central bank will make its next monetary policy decision on Wednesday. While analysts don’t expect a change to the overnight lending rate, now at 5 per cent, they are looking for any clues that rate cuts will begin in June or July.

“The Canadian labour market is beginning to show more cracks,” Royce Mendes, head of macro strategy at Desjardins Securities, wrote in a client note. “Combined with the recent run of soft [Consumer Price Index] prints, these numbers should have the Bank of Canada opening the door next week to easing policy around the middle of this year.”

Of late, the country has struggled to create work for a historic influx of newcomers, with the population aged 15 and up rising by nearly 91,000 in March alone. As a result, the employment rate has fallen for six consecutive months to 61.4 per cent.

Self-employment fell by 29,000 in March, offsetting increases in the public and private sectors. Employment fell by 29,000 in accommodation and food services, the worst result of any industry, followed by a decline of 23,000 positions in wholesale and retail trade.

Total hours worked across the economy fell by 0.3 per cent in March, which doesn’t bode well for gross domestic product, which had started the year with strong gains.

Wage growth is proving sticky, a frequent concern for the Bank of Canada as it tries to wrestle inflation back to its 2-per-cent target. Average hourly wages rose 5.1 per cent over the past year, in line with growth of 5 per cent in February.

In a client note, Bank of Montreal chief economist Doug Porter said the combination of rising unemployment and elevated wage growth “leaves the Bank of Canada in a tricky spot, with the job market clearly softening, yet still spinning off strong income gains. On balance, the BoC will likely view the overall results as pointing to more disinflationary pressure ahead, and will await the next couple of inflation prints, but a June cut is looking a bit more likely now.”

At the March decision, Bank of Canada Governor Tiff Macklem said it was still too early to consider lowering the overnight lending rate. “Recent inflation data suggest monetary policy is working largely as expected,” he said at a news conference. “But future progress on inflation is expected to be gradual and uneven, and upside risks to inflation remain. Governing Council needs to see further and sustained easing in core inflation.”

The annual inflation rate is tracking lower than the Bank of Canada projected for the first quarter, and, in February, it ebbed to 2.8 per cent. (Inflation had peaked at roughly 8 per cent in mid-2022.) Combined with weakness in the labour market, this could prompt the Bank of Canada to use its April decision to set up a rate cut soon after, as central bankers often telegraph their moves in advance.

After Friday’s report, investors ramped up their bets for a first rate cut in June. Interest-rate swaps, which capture market expectations about monetary policy, were pricing in an 77-per-cent chance of a quarter-point cut in June as of Friday afternoon, up from 72 per cent on Thursday, according to Bloomberg data. Traders are expecting up to three cuts in 2024, which is fewer than earlier this year.

“While today’s jobs data isn’t dire enough for the BoC to renege on its forward guidance and cut rates next week, it is weak enough to confirm our view that June’s decision to cut will be the first of a sequence,” Simon Harvey, head of FX analysis at foreign-exchange company Monex Europe, said in a research note.

Canada’s merchandise trade surplus increased to $1.4 billion in February as exports of gold hit an all-time high, Statistics Canada said Thursday.

The agency said the result compared with a revised surplus of $608 million in January.

Total exports in February rose 5.8 per cent to $66.6 billion, boosted by an increase in exports of unwrought gold.

Exports of metal and non-metallic mineral products surged 31.1 per cent in the month to a record $9.4 billion powered by increased high-value shipments of refined gold as well as transfers of gold assets in the banking sector.

Statistics Canada said that excluding the product group for unwrought gold, exports were up 2.8 per cent for the month.

Meanwhile, total imports rose 4.6 per cent to $65.2 billion in February, helped by a 9.7 per cent increase in imports of electronic and electrical equipment and parts to a record $7.6 billion.

In volume terms, total exports rose 6.2 per cent in February, while total imports rose 4.1 per cent.

“Canada’s merchandise trade activity improved in February, supporting the sturdy flash estimate for GDP growth in the month, and adds to signs that economic activity accelerated in the first quarter,” BMO economist Shelly Kaushik wrote in a report.

Statistics Canada said last week that its preliminary estimate for February pointed to real GDP growth of 0.4 per cent for the month, helped by strength in the mining, quarrying, and oil and gas extraction, manufacturing, and finance and insurance sectors.

The result came after it said the economy grew 0.6 per cent in January, helped by the end of public sector strikes in Quebec in November and December.

The overall trade results came as Canadian exports to the United States rose 3.3 per cent in February and imports from Canada’s largest trading partner increased 3.4 per cent, resulting in a trade surplus with the U.S. of $9.1 billion in February compared with $8.8 billion in January.

Canada’s trade deficit with countries other than the United States was $7.7 billion compared with a deficit of $8.2 billion in January.

In a separate release, Statistics Canada said the country’s international trade in services deficit narrowed to $1.0 billion in February compared with $1.2 billion in January as exports of services rose 1.9 per cent and imports of services increased 0.8 per cent.

When international trade in goods and services are combined, the agency said Canada’s total trade balance with the world came in at a surplus of $367 million in February compared with a deficit of $595 million in January.

Published: 4/4/2024 8:36 AM ET | 

A day ahead of the release of the more closely watched monthly jobs report, the Labor Department released a report on Thursday showing first-time claims for U.S. unemployment benefits rose by more than expected in the week ended March 30th.

The report said initial jobless claims climbed to 221,000, an increase of 9,000 from the previous week’s revised level of 212,000.

Economists had expected jobless claims to inch up to 214,000 from the 210,000 originally reported for the previous week.

The Labor Department said the less volatile four-week moving average also crept up to 214,250, an increase of 2,750 from the previous week’s revised average of 211,500.

Published: 4/4/2024 5:57 AM ET | 

Gold prices dipped slightly on Thursday, after having surpassed $2300 for the first time ever on the back of a weaker dollar and falling Treasury yields.

Spot gold dipped 0.3 percent to $2,292.85 per ounce, while U.S. gold futures were down 0.1 percent at $2,312.45.

The downside remained capped amid bets that policymakers at the Fed, ECB and BOE will cut rates at their June meetings.

Fed officials will likely reduce their benchmark interest rate later this year, Chair Jerome Powell said Wednesday but nevertheless emphasized the need for more evidence that inflation is easing.

Elsewhere, ECB’s Robert Holzmann said the central bank could start cutting interest rates in June but warned the ECB should not get too far ahead of its U.S. counterpart.

Speculation is rife that the Bank of England will deliver more interest-rate cuts than the Fed this year.

Minutes of the most policy recent meeting published earlier today suggested that Sweden’s central bank may be able to cut its key rate in May if inflation continues to ease.

Minutes from the European Central Bank’s latest policy meeting are awaited later in the day.

Reports on weekly jobless claims and the U.S. trade deficit may attract attention in the New York session, although trading activity is likely to be somewhat subdued ahead of the release of the more closely watched monthly jobs report on Friday.

Canada recorded a bigger than expected trade surplus of $1.39-billion in February as a record level of unwrought gold helped export growth outpace the monthly rise in imports, data showed on Thursday.

Analysts polled by Reuters had forecast a $800-million surplus in the month. January’s trade balance was upwardly revised to $608-million from a surplus of $496-million initially reported.

Total exports rose 5.8 per cent, the fastest growth rate since August, while imports increased 4.6 per cent to their highest level since June, Statistics Canada said.

The merchandise trade report showed further signs of economic resurgence after it stumbled in the second half of 2023. Economic growth rebounded more robustly than expected in January, and gross domestic product likely expanded 0.4 per cent in February, data released last week showed.

The international trade data bolsters the fact that February will once again post solid growth.

The strong growth, which put the economy on track to exceed the Bank of Canada’s forecast for the first quarter, has likely eased the urgency for a rate cut, economists have said, and Thursday’s data is expected to ease the pressure further.

The central bank has kept borrowing costs at a more than two-decade high of 5 per cent to cool inflation. While that has crimped consumer spending, it has not taken the steam out of the economy, allaying fears of a recession speculated last year.

The BoC will update its growth forecasts and monetary policy decision on April 10.

The Canadian dollar strengthened with the local currency trading 0.3 per cent stronger at 1.3485 to the US dollar at 1249 GMT.

The rise in exports in February was led by the metal and non-metallic mineral products group which includes unwrought precious metals like gold. Increased high-value shipments of refined gold, as well as transfers of gold assets in the banking sector, were observed in February, Statscan said.

By volume, total exports rose 6.2 per cent.

Growth in imports was led by the electronic and electrical equipment and parts product group which increased to a record level in February. There was an increase in imports of high-value data processing units, generally used for the development of complex cloud systems, from the United States.

Imports of consumer goods were also up, with the clothing, footwear and accessories category posting the largest increase.

By volume, total imports increased 4.1 per cent.

Overall, 9 of the 11 export product sections rose in the month, while all import product sections, except metal and non-metallic mineral products, were up.

Oil prices were steady on Thursday, shored up by concerns about lower supply as major producers keep output cuts in place and on signs of stronger economic growth in the U.S., the world’s biggest oil consumer.

Brent futures for June fell 5 cents to $89.30 a barrel at 0919 GMT. U.S. West Texas Intermediate (WTI) futures for May fell 1 cent to $85.42 a barrel.

A meeting of top ministers from the Organization of Petroleum Exporting Countries and its allies (OPEC+) including Russia, kept oil supply policy unchanged on Wednesday and pressed some countries to boost compliance with output cuts.

The group said some members would compensate for oversupply in the first quarter. It also said Russia would switch to output rather than export curbs.

Both the June Brent contract and the May WTI contract have risen for the past four days and closed on Wednesday at their highest levels since October.

Analysts at ING said oil prices continued to edge higher after the OPEC+ meeting recommended no change to output policy.

“Brent is facing some resistance at the $90/bbl level, with it unable to break above it so far,” the ING analysts said.

On Wednesday, Federal Reserve Chair Jerome Powell was cautious about future interest rate cuts after recent data showed higher-than-expected job growth and inflation.

The comments were positive for oil because they indicated solid U.S. economic growth, said Rob Haworth, senior investment strategist for U.S. Bank’s asset management group.

Oil’s recent gains have followed Ukrainian attacks on Russian refineries that cut fuel supply and concerns that the Israel-Hamas war in Gaza may spread to include Iran, possibly disrupting supplies in the key Middle East region.

Iran has vowed revenge against Israel for an attack on Monday that killed high-ranking Iranian military personnel. Iran is the third-largest producer in OPEC.

“While this (OPEC+ decision) was widely expected, it provides some assurance that the recent rise in tension in the Middle East has not altered the group’s view on the market,” ANZ analysts said in a note on Thursday.

Dollarama Inc.DOL-T -1.40%decrease reported a 24-per-cent increase in profit in the fourth quarter, as Canadians feeling the sting of inflation continue to visit discount retailers to purchase everyday needs such as food, cleaning products, and personal care items.

The Montreal-based company also boosted its quarterly dividend by 29.9 per cent, to 9.2 cents per common share.

While people are buying less items during each trip to Dollarama, they are shopping there more frequently, partly as they look for lower prices on products the company refers to as “consumables.” Dollarama’s comparable store sales – an important metric that tracks sales growth not tied to opening new locations – grew by 8.7 per cent in the quarter ended Jan. 28, compared to the same period the prior year.

That has been an ongoing trend over the past two years as prices have risen and people have looked for ways to cut back. The fourth-quarter growth added to a 15.9-per-cent comparable sales increase in the same period the year before. For the full fiscal year, store traffic was up 12.3 per cent.

Dollarama reported net earnings of $323.8-million of $1.15 per share in the fourth quarter, compared to $261.3-million or 91 cents per share in the same period the prior year. Total sales grew by 11.3 per cent to $1.6-billion in the quarter.

The cost of shipping products into the country has also continued to decline from the peaks of the pandemic, helping to expand Dollarama’s gross profit margin to 46.3 per cent of sales, compared to 44.6 per cent in the prior year. The company also reported its logistics costs were lower, though the cost of store labour is going up.

For the full year ended Feb. 2, Dollarama’s sales increased by 16.1 per cent to nearly $5.9-billion. The company opened 65 new stores in Canada over the course of the year, increasing its total to 1,551 locations. Dollarama plans to maintain its pace of expansion, opening 60 to 70 additional stores this year.

The company reported full-year comparable sales growth of 12 per cent. Dollarama is forecasting comparable sales growth to slow somewhat in the year ahead, to a range of 3.5 to 4.5 per cent.

Dollarama reported $1-billion in net earnings for the full year, or $3.57 per share, compared to $801.9-million or $2.77 per share in the prior year.

The downturn in Canada’s services sector deepened in March as higher prices and elevated borrowing costs crimped customer demand but firms remained confident that better times lie ahead, S&P Global Canada services PMI data showed on Wednesday.

The headline business activity index fell to 46.4 from 46.6 in February. A reading below 50 indicates contraction in the sector, with the index stuck below that threshold for ten straight months, the longest such stretch in three years.

“Canada’s services economy remained mired in a downturn during March, with both activity and new business volumes declining again,” Paul Smith, economics director at S&P Global Market Intelligence, said in a statement.

“The restrictive impact on market activity of high prices and elevated interest rates remains plain to see.”

The new business index showed sales declining for an eighth successive month, held back by reduced consumer confidence and high prices.

The input prices index rose to 61.0 from 59.5 in February, bolstered by higher wages, while service providers sought to pass on increased costs by raising sales prices.

Investors expect the Bank of Canada to leave its benchmark interest rate on hold at a 22-year high of 5 per cent at a policy decision on April 10 but to then begin an easing cycle in June or July.

The prospect of rate cuts supported hopes of a stronger economic climate in the next year. The future activity index eased only slightly to 63.6 after climbing to 63.7 in February, its highest level since April.

The S&P Global Canada Composite PMI Output Index, which captures manufacturing as well as service sector activity, dipped to 47.0 in March from 47.1 in February.

Data on Monday showed that the manufacturing PMI edged up to an 11-month high at 49.8 last month.

Federal Reserve officials will likely reduce their benchmark interest rate later this year, chair Jerome Powell said Wednesday, despite recent reports showing the U.S. economy is still strong and that U.S. inflation picked up in January and February.

“The recent data do not … materially change the overall picture,” Mr. Powell said in a speech at Stanford University, “which continues to be one of solid growth, a strong but rebalancing labour market and inflation moving down toward 2 per cent on a sometimes bumpy path.”

Most Fed officials “see it as likely to be appropriate” to start cutting their key rate “at some point this year,” he added.

In his speech, Mr. Powell also sought to dispel any notion that the Fed’s interest-rate decisions might be affected by this year’s presidential election campaign. The Fed will meet and decide whether to cut rates during the peak of the campaign, in July and September.

Though inflation has cooled significantly from its peak, it remains above the Fed’s 2-per-cent target. And average prices are still well above their pre-pandemic levels – a source of discontent for many Americans and potentially a threat to President Joe Biden’s re-election bid.

The recent pickup in inflation, though slight, has led some economists to postpone their projections for when the Fed will begin cutting rates. Rate cuts would begin to reverse the 11 increases the Fed carried out beginning in March, 2022, to fight the worst inflation bout in four decades. They would likely lead, over time, to lower borrowing rates for households and businesses.

Many economists now predict that the central bank’s first rate cut won’t come until July or even later. That expectation has fuelled some speculation on Wall Street that the Fed might end up deciding to delay rate cuts until after the presidential election. The Fed’s November meeting will take place Nov. 6-7, immediately after Election Day.

Former president Donald Trump has called Mr. Powell “political” for considering rate cuts Mr. Trump has said could benefit Mr. Biden and other Democrats. Mr. Powell was first nominated to be Fed chair by Mr. Trump, who has said that, if he is elected president, he will replace Mr. Powell when the Fed chair’s term ends in 2026.

In his speech Wednesday, Mr. Powell noted that Congress intended the Fed to be fully independent of politics, with officials serving long terms that don’t coincide with elections.

“This independence,” Mr. Powell said, “both enables and requires us to make our monetary policy decisions without consideration of short-term political matters.”

The Fed chair’s remarks follow several reports showing that the economy remains healthy, largely because of solid consumer spending. Yet that strength could make it tougher for the Fed to achieve its goal of slowing inflation to its 2-per-cent target. Annual inflation ticked up in February to 2.5 per cent, according to the central bank’s preferred measure, though that was down sharply from its peak of 7.1 per cent.

When they met two weeks ago, Fed officials forecast that they could cut their benchmark rate three times this year. Still, nearly half the 19 policy makers pencilled in just two or fewer rate cuts.

Strong economic growth could diminish the likelihood of a Fed rate cut later this year for two reasons. One is that steady hiring and brisk consumer spending can lead companies to raise prices and thereby worsen inflation.

The other reason is that a healthy economy reduces the need for the Fed to cut rates, which tends to stimulate growth. Typically, the central bank reduces its key rate when growth stumbles and companies start cutting jobs. Mr. Powell and other officials have underscored that as long as the economy remains healthy, they can take time to assess the path of inflation and ensure that it’s headed back down to their 2-per-cent target.

Last week, a government report showed that consumer spending accelerated in February, and prices rose faster than is consisted with the Fed’s inflation target for the second straight month.

“On inflation, it is too soon to say whether the recent readings represent more than just a bump,” Mr. Powell said. “Given the strength of the economy and progress on inflation so far, we have time to let the incoming data guide our decisions on policy.”

In remarks this week, some other Fed officials reiterated their expectations for three quarter-point rate reductions this year, while also underscoring that such cuts would depend on inflation slowing from the January and February readings.

“I think three is still reasonable, but it’s a close call,” Loretta Mester, president of the Federal Reserve’s Cleveland branch, told reporters Tuesday.

Still, Raphael Bostic, president of the Atlanta Fed, said earlier Wednesday on CNBC that he envisions just one interest-rate cut this year, likely in the final three months of the year.

Mr. Bostic is among the 12 policy makers with a vote on the central bank’s interest-rate decisions this year.