Canada: Employment and international trade data in focus – TDS

In view of analysts at TDS, the Canadian labour market is set to end 2017 on a weak note with the loss of 10k jobs after November’s hiring surge.

Key Quotes

“Job losses should be felt in both goods and services as retail and manufacturing give back some of the +30k jobs each industry added in November. We also look for Ontario to underperform ahead of a scheduled hike to the minimum wage, which is set to jump by roughly 20% on January 1. However, given the mature phase of the labour market we expect headline job growth to be overlooked in favour of measures of labour market slack. Here we see a further improvement in wage growth for permanent employees, pushing towards 2.8% y/y or higher. But we expect the unemployment rate to rebound to 6.0%.”

“International Trade: The international merchandise trade deficit is forecast to narrow to $1.0bn in November, reflecting a further recovery in exports partially offset by rising imports. Motor vehicle exports should provide a source of strength as production normalizes from low levels, allowing a chance to replenish depleted US inventories. However, energy exports will be constrained by pipeline bottlenecks after a spill shutdown the Keystone pipeline for part of the month. Higher crude prices and increased rail shipments will provide a key offset to weaker pipeline volumes and as a result, nominal crude exports should still post an increase. On the other side of the spectrum, imports should rise on strong domestic demand with a large contribution from a rebound in auto parts as disruptions in production subside.”

“Foreign Exchange

• The FX market will have to manage the noise coming from the dual payroll reports tomorrow. We think the signal from the broad USD will set the tone the in the majors. Still, for CAD outperformance to persist, we need to see a mix of good Canadian data and flat to soft US data. It is noteworthy that CAD’s knee-jerk response to the dual report has been to rally over the past year. The eight days last year that both the US and Canada reported payrolls saw an average 0.2% drop in the pair. What’s more, CAD rallied on both 1-sigma beats and missed to its payrolls report, suggesting the broader dollar response is vital.
• TD’s forecast comes in 1-sigma below the median (0.88 on the mean) consensus, but if this script holds the US report will offer the better signal. We look to trade on the momentum of the releases, so a weak US report is likely to intensify downside risks for USDCAD with 1.2490 the crucial pivot point. Alternatively, a US beat (or soggy Canadian data) could suggest that 1.25 will remain sticky for now. Our high-frequency fair value estimate sits at 1.2676, though we will be happy to fade the signal if this old relationship holds.”