Market Commentary: A review of June employment numbers and bonds

  • Jason Ellis, Chief Operating Officer

Good Morning Mortgage Market Participants,

It’s been a relatively quiet week with the Canada Day holiday on Monday and US Independence Day yesterday.  You might even say it’s been too quiet.  My mind has been aglow with whirling, transient nodes of thought careening through a cosmic vapor of invention.  Not really.  In fact…this was a perfect week to focus on “business development” opportunities at various off-site locations.  Wink-Wink, nudge-nudge, say no more, say no more.  If you, like me, have been working on “relationship management”, here’s what you missed.

Hot off the Press

Net Change in Canadian Employment fell short of expectations this morning, losing 2,200 jobs compared to a forecast increase of 9,900 and 27,700 last month.  Despite this, the first half of 2019 was still one of the best on record in terms of Canadian job gains.  The economy has added over 247,000 jobs so far this year, the most since 2002.  The modest reading for employment in June doesn’t really change the economic picture, especially with wages showing signs of strength.  Annual hourly wage gains accelerated to 3.8% in June, up from 2.8% last month.

South of the border, the benchmark Non-Farm Payroll data came in hot, up 224,000 compared to an expected increase of ‘just’ 160,000 and +72,000 last month.  Average hourly earnings fell by a tick to 3.1% from 3.2%.


By itself, soft employment data would typically be considered ‘dovish’ resulting in a bond rally and lower rates, but the combination of strong wage growth (inflationary) and strong US employment, has bonds trading lower and yields moving higher.  As of 9:30 this morning, an hour after the employment data was released; bond yields are 8-9 basis points higher across the curve.

5 year GoC’s are trading at 1.50% compared to 1.29% at the beginning of June.

10 year GoC’s are trading at 1.54% compared to 1.42% at the beginning of June.

Note the significant flattening of the yield curve between 5’s and 10’s.  The spread has narrowed from about 20 basis points in April to only 4 basis points today.

Other News

The highly anticipated meeting between US President Trump and Chinese President Xi Jinping at the G20 conference in Japan came and went without controversy.  No real progress was made in the ongoing trade dispute but no new damage was done either.  Let’s call that a win.  Perhaps the highlight of the conference was the awkward presence of Ivanka Trump despite a lack of international relations or foreign policy credentials.   I think Trump confused the event for some kind of glorified bring your kid to work day.

In semi-related news, possibly aided by the lack of further controversy with China, the Dow Jones Industrials Average closed at a record high this week after climbing 170 points in a shortened session on Wednesday ahead of the Independence Day holiday. The Dow is now up 15% year to date.  Not to be outdone, the TSX Composite is up 15.23% (or 19.7% in USD terms).  Go Canada Go!

The Week Ahead

The Bank of Canada meets on Wednesday.  Expect the overnight rate to hold steady at 1.75%.  Unlike the US Fed, the BoC is unlikely to introduce any easing bias in the Monetary Policy Report (“MPR”). 

The greatest outdoor show on earth starts today…the Calgary Stampede.  If you like chuck wagons, cowboys, and bacon wrapped corn on the cob, you should check it out if you’re in the vicinity of Alberta.

That’s all for now…my mind is a raging torrent, flooded with rivulets of thought cascading into a waterfall of creative alternatives, so I need to get back to work, but before I do…a safety tip.  It’s hot out there.  Be sure to get plenty of fluids.  I’ve seen a person dehydrate before and it’s pretty gross.

Have a great weekend,

Treasury Guy.