Canadian employment for May saw an increase of 27.7k

Posted: Friday, June 7, 2019 - 09:58 EDT

Canadian employment for May saw an increase of 27.7k jobs, beating estimates for 5k new jobs.  This follows a very strong previous month that saw Canada add 106.5k jobs.  In May, all the jobs added were full time with the unemployment rate dipping to 5.4% from 5.7%.  The participation rate also declined from 65.9% to 65.7%, while average hourly wages held steady at 2.6%.  The unemployment rate in Canada is now at their lowest levels since 1976 with the majority of the jobs added this month being in the service-producing sector. 

The U.S. also announced non-farm payroll data this morning that missed expectations for an increase of 175k.  The U.S. saw an increase of 75k jobs although two-month payrolls were revised lower by 75k.  Both the unemployment rate and participation rate in the U.S. held steady at 3.6% and 62.8%, respectively.  Average hourly earnings on an annual basis did decline by 0.1% to 3.1%.  Investors were eagerly awaiting non-farm payroll data given the softer numbers released from ADP earlier this week.  The lower than expected jobs added in May have now moved expectations of a rate cut by the FOMC in July to 76.5%.  As a result, yields in the front end of the Treasury curve decline by 8-9bps, while the stronger than expected employment data out of Canada left Canadian yields lower by approximately 3bps.  The Canadian dollar also strengthened by approximately half a penny against the U.S. dollar.

The Canadian corporate credit market was mostly stable yesterday, similar to equity markets.  As a result, Canadian Western Bank priced a $250mil 10NC5 NVCC sub-debt at +235bps over the curve.  Given the more volatile market tone recently, the wider issuance spread levels led to increased appetite in the CWB bonds.  The new deal brought out 45 buyers and late fills were around 10%.  Outside of new issues, the market was relatively quiet following the June index extension with most investors staying on the sidelines.  With the tone skewing more positively, credit spreads ended the day approximately 1-2bps tighter.

Equity Markets:

  Index Level % Change QTD YTD Q4 2017 Q1 2018 Q2 2018 Q3 2018 Q4 2018 Q1 2019
S&P 500 2,843.49 0.61% 0.72% 14.47% 6.64% -0.76%

3.43%

7.71% -13.52% 13.65%
TSX

16,227.80

0.09%

1.30%

14.77%

4.44% -4.52%

6.77%

-0.56% -10.11 13.27%

Rates:

 

Today

% Change

QTD change

YTD change

Q4 2017

Q1 2018

Q2 2018

Q3 2018

Q4 2018

Q1 2019

Canada 5 Year

1.29%

-0.01%

-0.23%

-0.60% 1.87% 1.97% 2.07% 2.34% 1.89% 1.52%
Canada 10 Year 1.43% -0.02% -0.19% -0.54% 2.05% 2.09% 2.17% 2.43% 1.97% 1.62%
Canada 30 Year 1.72% -0.03% -0.17% -0.46% 2.27% 2.23% 2.21% 2.42% 2.18% 1.89%
30yr Generic Corporate A rated Spread 1.45% 0.00% -0.05% -0.05% 1.21% 1.24% 1.28% 1.30% 1.50% 1.50%
30yr All-in Corporate A rated Yield

3.17%

-0.03% -0.22% -0.22% 3.48% 3.47% 3.49% 3.72% 3.68% 3.39%
US 10 Year 2.12% 0.01% -0.28% -0.56% 2.41% 2.74% 2.86% 3.06% 2.69% 2.41%
CDX IG 62.494 -1.246                

The information contained herein is intended for advisors for general information only and is compiled from sources believed to be reliable, but no representation or warranty, express or implied, is made as to its accuracy. All opinions contained in the commentary and expressed by the portfolio manager are subject to change without notice and are provided in good faith without legal responsibility. All market data is sourced from Bloomberg.