CANADA: Analysts' July BOC Rate Cut Calls Revoked After Jobs Data

Some analysts have altered their views on the path ahead for BOC rates, following the stronger-than-expected June labour market data (in addition to TD which we noted earlier no longer sees July BOC cut, raised terminal rate by 25bp). Just one of the Canadian banks we track - Desjardins - affirmed a July cut view in the wake of the jobs data, eyeing next week's CPI release as a catalyst.

• CIBC no longer sees a July cut: "This report clearly gives the BoC a reason to pause again in July. But the unemployment rate is still elevated, and new tariff threats and the uncertainty over the USMCA renewal is lingering. Moreover, the LFS survey is volatile and could reverse these gains ahead, as the economy likely hasn't seen the full damage from tariffs in place yet. Wage growth softened to 3.2% y/y, and all of that suggests that policymakers could still opt to cut in September, and follow that with a final cut in December, leaving our terminal rate forecast of 2.25% unchanged."
• National appears to no longer see a July cut as a base case: "While signs of stabilization are welcome, it remains that tariff-related uncertainty contributed to a deterioration in the labour market during the first half of the year. Since February, the unemployment rate has risen by three-tenths of a percentage point. As a result, the Canadian labour market remains in a state of oversupply, which helps explain why wage growth continues to moderate. Hourly compensation for permanent employees is now increasing at its slowest pace in more than three years (bottom chart) which is good news for inflation pressures. All in all, this morning's report makes an interest rate cut at the end of July unlikely."
• And BMO Economics also appears set to shift its forecast for a July cut barring a CPI surprise: "This is a very solid report...it appears that the economy is hanging in there for now, pending the result of ongoing trade negotiations. Barring a sharp decline in underlying inflation in next week's June CPI report (which looks unlikely), the strength in today's jobs data and the recently heightened uncertainty on the trade front likely keep the BoC on the sidelines when it meets later this month."

Others didn't change their minds: 

• Desjardins still sees a July cut: "Looking ahead, Canada remains stuck in trade war limbo. Furthermore, the recent headlines on federal budget savings targets suggest that we will likely see further reductions in public sector employment. Overall, while today’s report is seemingly encouraging, there are reasons to doubt that this pace can be sustained. Next week’s CPI release will likely play a bigger role on the Bank of Canada’s July 30th decision. Our call remains for a cut."
• RBC Economics still sees no cut in July (or beyond): "While downside economic growth risks remain, the June labour market data is consistent with our base-case assumpiton that the BoC will not cut interest rates further after skipping reductions at each of the central bank's last two policy decisions."
• As does Scotiabank, who also retain the view that there will be no further BOC cuts: "Forget about that July 30th cut....Optically, it would be exceedingly difficult for them to cut after year-to-date and June jobs numbers like these. GDP will continue to be distorted by inventory and import swings and hence tough to read, but under the hood GDP figures could be reasonably resilient. The core inflation trend remains far too hot even though I wouldn't be surprised to see next Tuesday's trimmed mean and weighted median figures ebb off the 4½% m/m SAAR pace in May, although tariff effects are a wild card."