BOC: Data Calls For Further Patience (2/4)
Looking at recent inter-meeting data informing the likely rate hold Wednesday (more detail in our PDF preview):
- June's Labour Force Survey saw much-better-than-expected employment (+83.1k, vs 0.0k consensus) and unemployment rate (6.9%, vs 7.1% consensus) data. This was the biggest overall monthly job gain in 6 months.
- June CPI report showed stronger-than-anticipated price pressures. The main takeaway was the slightly-higher-than-expected print for the BOC's preferred inflation metric: with the trim / median average finishing Q2 averaging 3.05%, higher than the 2.95% "forecast" by the BOC in its April projections (its two tariff scenarios were 2.9% or 3.0%). For the quarter, Y/Y trim averaged 3.03% and median 3.07%. June didn't see a major upside miss on the major core metrics, but when combined with the upside "miss" in headline CPI (a below-BOC target 1.8% Y/Y in Q2, but vs 1.5% in April's BOC projections), the apparent acceleration in inflation momentum is reason enough to stay on hold.
- The advance estimate for June's retail sales is for 1.6% M/M gains - which would be the fastest pace since December.
- The Bank of Canada's quarterly Business Outlook Survey (BOS) and Canadian Survey of Consumer Expectations (CSCE) showed broadly that the economy and inflation expectations stabilized between February (the Q1 survey) and May (the Q2 report released this month). Neither survey's findings are an obstacle for further BOC rate cuts, but nor do they make a compelling case for further easing.
- The latest monthly GDP reading showed a below-consensus -0.1% M/M reading for April, with the May flash estimate also pointing to a 0.1% contraction (we get the data on July 31, the day after the BOC decision). That was indicative of quarterly growth of -0.3% in Q2, if June comes in flat (which looks like pessimistic assumption given other activity data for the month). This would be between the BOC's two scenario estimates of -1.3% and 0.0% in its April projections. This comes after the latest quarterly GDP release on May 30 showed Q1 annualized GDP +2.2%, above the BOC forecast for +1.8%
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US FISCAL: Available "Extraordinary" Measures To Ward Off X-Date Pick Up
Treasury reported Friday that as of Jun 25 it had $130B in remaining "extraordinary" measures (of a total $378B available) to ward off an "x-date" of running out of resources before defaulting. That's the highest in 2 weeks.
- Combined with $334B cash as of Jun 25 (after a bit of a buildup after the mid-June tax deadline), that's a total of roughly $465B in total resources available.
- We noted earlier this week that Treasury told Congress that it was required to extend its debt issuance suspension period from Jun 27 to Jul 24, in effect prolonging the use of extraordinary measures while we await a resolution to the debt limit impasse, probably through the fiscal legislation currently going through Congress.
- Realistically, fiscal dynamics so far this year point to potential for Treasury to get into September without running out of cash + extraordinary measures. That seems to be the broad market expectation.
US DATA: Cleveland, Dallas Fed PCE Medians Show Progress But Still Above-Target
The Cleveland and Dallas Fed's median PCE metrics showed a notable drop in May. All indices suggest PCE inflation running above 2%, and higher than the actual core and headline PCE measures, but pressures appear to have cooled from a pickup in the early months of the year.
- The Cleveland Fed's median PCE measure came in at 0.22% M/M, a 10-month low after April's 15-month high 0.31%. This left median PCE at 3.01% on a Y/Y basis, down from 3.06% prior for a the joint-lowest (with Feb) since September 2021.
- The Dallas Fed's annualized median rate fell to 2.01%, from 2.65% prior for a 10-month low. The 6-month annualized rate edged lower to 2.74% (2.76% prior), a 4-month low, with the Y/Y rate ticking down to 2.55% from 2.56%, echoing the Cleveland Fed for the lowest reading since September 2021.
USDCAD TECHS: Pivot Resistance Remains Intact
- RES 4: 1.4111 High Apr 4
- RES 3: 1.4016 High May 12 and 13 and a key resistance
- RES 2: 1.3920 High May 21
- RES 1: 1.2710/3803 20- and 50-day EMA values
- PRICE: 1.3658 @ 16:23 BST Jun 27
- SUP 1: 1.3618 Low Jun 26
- SUP 2: 1.3540 Low Jun 16 and the bear trigger
- SUP 3: 1.3503 1.618 proj of the Feb 3 - 14 - Mar 4 price swing
- SUP 4: 1.3473 Low Oct 2 2024
USDCAD has pulled back from its recent highs. The primary downtrend remains intact and short-term gains appear to have been corrective. Key support and the bear trigger has been defined at 1.3540, the Jun 16 low. Clearance of this price point would resume the downtrend. Any reversal higher would instead signal scope for a stronger retracement. Pivot resistance to monitor is at the 50-day EMA, at 1.3803.
