Analysts at TDS are looking for the Canadian economy to add a relatively modest 8k jobs in May, roughly 10k below the six month trend, while a rebound in part-time employment should add to the downbeat tone.
Key Quotes
“Full time job growth has outperformed part time by 160k over the last two months, leaving us biased towards a correction. Our base case is for unchanged average hourly earnings (3.3% y/y for permanent employees), with risks for a significant acceleration unlikely. This is especially true given the sharp decline in March SEPH wage growth and deceleration in the national and productivity accounts in Q1. Indeed, our wage tracker of underlying wage growth has slowed to roughly 2.8% y/ y after peaking in January, thereby underperforming the strength in LFS (see Wages Worth Tracking: Introducing Cyclical Wage Indicators). Finally, after a pullback in labour force participation last month, we expect a partial rebound in May to drive the unemployment rate higher to 5.9%.”
“BoC implications
- The focus in this report should be on jobs and the unemployment rate, which we expect to offer further signs that labour market tightening is continuing but at a slower pace. The six-month average pace in job gains slowed to 17k in April, the lowest since late 2016, while the unemployment rate has remained in the 5.8-5.9% range since November.
- The combination of another weak jobs print along with a tick higher in the unemployment rate only reinforces that the rapid labour market improvement is behind us. Meanwhile, lack of a further acceleration in wage growth is consistent with our view that the past acceleration is mainly on account of minimum wage hikes and that forward momentum is unlikely. Therefore, we expect this report to be consistent with only one more hike in 2018, likely to come in July as signaled by recent BoC communications.”
“FX
- Small disappointment in job gains should add modest downside pressure to CAD despite wages expected to remain stable as a priced BoC and lingering trade tensions keep CAD’s return profile asymmetrically tilted lower as Poloz’s newfound optimism may begin to look misplaced. 1.2900/20 and 1.2850 offer good levels to buy dips. 1.30 remains an anchor for USDCAD with 1.3040/50 a key resistance marker that coincides with major trend line established from the 2016 highs.
- A sustained break above this would open material upside potential as high as 1.3125/1.3200. Admittedly however, we see greater value in expressing CAD bearishness on the crosses. Here, we have been short vs NZD but we are warming up to rotating this into a EURCAD long (see: Convergence ReEmergence Redux). The pair has legs to run higher ahead of next week’s ECB meeting as nascent optimism has crept back into the market over prospective plans to address its balance sheet. The technical backdrop looks constructive and we like buying on dips with the 200-day near 1.52 to provide a very durable floor. Topside resistance is spotted near 1.5370 followed by 1.55.”
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