BOC: Jobs Data Brings Modestly Dovish Rates Reaction, No View Changes
Aug-08 16:02
The reaction to the weaker-than-expected July Labour Force Survey was unsurprisingly dovish, though doesn't really change the perceived outlook for the Bank of Canada rate path. September rate cut pricing nudged up about 1bp per OIS, with still only about 40% implied probability of a 25bp cut. There's exactly 25bp of cuts priced through year-end (vs about 22bp prior to the LFS release).
- Below is a selection of reactions by analysts at Canadian institutions in alphabetical order- none have changed their view on the BOC path ahead, leaving expectations largely focused on 2 further cuts in this cycle for most analysts:
- BMO: "This is an unambiguously weak report...although it comes hard on the heels of an unambiguously strong report. Taken together, the overall picture is a soft economy, running with some excess capacity, not surprising in light of the trade uncertainty. For the Bank of Canada, this acts as a heavy counterweight to the outsized strength in June, but it will still need to see inflation slow notably over the next two prints for a September cut to be a high likelihood. We expect that the job market slack will put downward pressure on inflation, eventually, supporting the case for a return to modest rate cuts. And it appears that the trade uncertainty will be with us for some time yet."
- CIBC: "The reduction in the employment population ratio will likely get the most attention at the Bank of Canada, and is supportive of a September interest rate cut, albeit admittedly with a lot more data to be released between now and the time of that meeting."
- Desjardins: "Labour market conditions are gradually weakening, with the unemployment rate treading water at about 2 percentage points higher than the low achieved three years ago and fewer job openings to fill...reading between the lines, it looks like the Bank [of Canada] is anticipating a return to monetary easing later this year, with two out of the three scenarios presented in the July Monetary Policy Report in favour of further cuts."
- RBC: "Overall, the Canadian labour market remains softer than usual. But the July labour market data is consistent with our base-case that assumes the bulk of tariff-related damage could already be done -- leading indicators of hiring demand (business sentiment, job openings data) continue to stabilize in the summer after more pronounced cooling in the spring. We look for the Canadian unemployment rate to peak soon around 7%, and do not expect further interest rate cuts from the BoC."
- Scotiabank: "Nothing hangs on just this one report. It comes on the heels of an 83k gain in June and with 103k jobs created so far this year. Smooth the noisy household survey. Further, this is one of two job reports before the next BoC decision on September 17th, along with a bevy of other macro indicators (CPI, GDP etc) and potential developments around trade and fiscal policies. It’s probably because of these points that market moves were minor following the release. There is only about 10bps priced in for the BoC September meeting."
- TD: "Today's report, to the extent that we are going to draw any conclusions from CAD jobs numbers (always a dangerous proposition), is consistent with our broader view on the economy. We look for near-zero growth in Q2 and Q3, and believe there is enough slack in the economy to justify additional easing. We continue to look for BoC cuts in September and October, but we once again want to emphasize that we'll need to see moderation in CPI before the Bank can credibly ease."
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US: Trump To Meet With African Leaders Shortly
Jul-09 16:01
US President Donald Trump is shortly due to meet with the leaders of Gabon, Guinea-Bissau, Liberia, Mauritania, and Senegal for a business lunch at the White House to discuss “commercial opportunities”. LIVESTREAM
- According to Semafor, the Islamic Republic of Mauritania will take a step toward resuming ties with Israel at the meeting.
- Chatham House notes: “The lunch signals that the Trump administration does not intend to ignore the African continent and plans to engage selectively. The aims are clear: to secure mineral deals and supply chains and especially to compete with China.”
- The White House press pool notes in a backgrounder: "All five of the countries invited enjoy rich natural resources - including manganese (a critical mineral in the production of batteries and stainless steel), iron ore, gold, diamonds, lithium, cobalt and more. The US’ global competitors - particularly China - have made significant in-roads on the continent in recent years, becoming a top trading or investment partner of many of those nations invited. Gabon, for example, provides 22% of China’s manganese used in batteries - the country holds around a quarter of the global known reserves."
- The meeting will also be of broader interest to markets as it provides the first press access to Trump today. It comes in the wake of a new set of tariffs imposed on 15 trading partners this week, which will take effect on August 1 if bilateral trade agreements aren't struck.
TARIFFS: Trump Issues New Tariff Letters On Truth Social
Jul-09 15:58
US President Donald Trump has issued a raft of new tariff letters on his Truth Social account, imposing unilateral tariff rates on six trading partners. The letters target Algeria (30%), Libya (30%), Moldova (25%), Iraq (30%), Brunei (25%), and the Philippines (20%).
- The letters follow a nearly identical template to the tariff letters issued to 15 trading partners on Monday and Tuesday. They note that goods "transshipped" via the targeted country will be subject to the tariff of the origin country, widely understood to be directed at Chinese goods.
- As with the other tariff letters this week, today's letters state that implementation will take place on August 1, opening the door for negotiations to lower the tariff rate.
- While Algeria, Libya, Brunei, and Iraq all have large hydrocarbon sectors, Iraq is the only country on the list with a notable bilateral trade in oil with the United States.
- Today's rates are largely in line with the rate announced earlier this week, which ranged from 25% on Japan and South Korea to 40% on Laos and Myanmar.
- The Yale Budget Lab noted in an update on July 7, shortly after the first new tariff rate was released: “Consumers face an overall average effective tariff rate of 17.6%, the highest since 1934. After consumption shifts, the average tariff rate will be 16.5%, the highest since 1936.”
SPAIN: Sanchez Outlines Anti-Corruption Measures; Admits Considering Resignation
Jul-09 15:58
Prime Minister Pedro Sanchez has outlined 15 new measures intended to counter graft, spearheaded by a new 'Public Integrity Agency'. Speaking in the Congress of Deputies, Sanchez said that in the wake of a scandal that has implicated a close ally of his, former PSOE organisational secretary Santos Cerdan, he had considered resigning from office. Sanchez: "I myself have considered [resignation]. It seemed like the simplest solution for me and my family. But after listening to many people, I realised that throwing in the towel is never an option. I will continue because I am a clean politician who was unaware of corruption. "
- Bloomberg: "The measures Sanchez unveiled to lawmakers include using artificial intelligence tools to monitor contracts, as well as blacklisting companies that have been found guilty of corruption and higher fines for companies, and sanctions for political parties involved in corruption."
- A key objective for the address was to shore up support for Sanchez's minority coalition gov't, which is propped up by a number of regionalist and separatist parties in an uneasy alliance.
- It would appear at present that the parties involved realised a no-confidence motion or Sanchez's resignation could spark a snap election. Recent opinion polling shows the most likely outcome of any election being a right-wing coalition formed by the conservative Popular Party and the nationalist Vox. As such, these parties look set to allow Sanchez to continue to retain their position at the table.
