Weekly Digest

June Bank of Canada Meeting

The Bank of Canada is likely to resume cutting next month. Friday’s dim jobs report has brightened prospects the Bank of Canada to reduce rates again.

Although the Bank kept interest rates unchanged at 2.75% last month, the Summary of Deliberations from that meeting suggests that the Bank is still leaning toward further rate cuts.

Here’s how the market-implied next-meeting odds:

• For the Bank of Canada meeting on June 4:
  • 25 bps cut: 66% chance
  • No change: 34% chance
• For the Federal Reserve meeting on June 18:
  • 25 bps cut: 17% chance
  • No change: 83% chance

Bond Yields

Fixed rates have been flat, as evidence of the bond yields. With no major changes since the election, or Carny & Trumps first face to face meeting, lenders are holding fixed rates steady.

Over the last month we have only seen about 0.20% of variation, which is not enough for lenders to raise or drop fixed rates.

US Fed Announcement

It was another neutral decision – the Fed’s version of ‘do no harm’ amid doubt on Trump’s trade policy.

“Uncertainty about the economic outlook has increased further,” the Fed said in its statement. “The Committee is attentive to the risks to both sides of its dual mandate and judges that the risks of higher unemployment and higher inflation have risen [compared to March].”

Carney’s Priorities

Carney’s first post-election press conference on Friday came 4 days after a minority government victory. His key points were:

1.    Building up Canadian resilience. He vowed to fight for the “best deal” possible during his meeting with Trump.

2.    New cabinet, new Parliament. Introduction of a new cabinet has been announced. Parliament will resume on May 26^th. He said he has no plans to form a governing pact with the NDP.

3.    Cost of living measures. Carney has vowed to swiftly institute new tax measures and to ramp up home construction across the country.

4.    National Security Spending. Carney promised to hire a thousand more Canada Border Services Agency officers and to bring in another thousand RCMP officers to shore up law enforcement. He promised to toughen up bail laws for anyone charged with stealing cars, home invasion, human trafficking or smuggling.

5.    Immigration cap. Carney said his government will return immigration to “sustainable levels” by capping temporary workers and international students at 5 per cent of the total population by 2028. Carney has criticized the Trudeau government for letting immigration surge after the pandemic at what he called a rapid and unsustainable level.

Carney Meets Donald Trump

• Trump stated he has “a lot of respect” for Carney and wants “to be friends” with Canada. “We love Canada”.
• Trump stated that he’d “love” to sign a new trade deal with Canada.
• Carney addressed one of the largest elephants in the room, telling the President in front of reporters that Canada will “never be for sale.” Trump seemed to take it well.
• Trump said he would not walk away from the United States–Mexico–Canada Agreement (USMCA) trade deal, adding that it was a “great” deal. He wants to see “subtle changes” to it, however.
• “We always will” protect Canada, Trump pledged.
• Carney characterized today’s discussions as “constructive” and “concrete,” whereby the U.S. was looking for “solutions.”
• The PM said more talks are planned for the weeks ahead.
• Carney and Trump will meet face-to-face next at the G7 Summit in Alberta this June.

US Employment Figures

Unemployment remained at 4.20% with job growth of 177,000. These data sets give no reason for the Fed to accelerate rate cuts moving forward.

Canadian Unemployment

The gap between Canadian and U.S. unemployment is widening.

• Job change: +7,400 (est. +2,500 | prior -32,600)
• Unemployment: 6.9% (est. 6.8% | prior 6.7%)
• Wages (permanent employees): +3.5% y/y (est. +3.3% | prior +3.5%)

31,000 manufacturing jobs disappeared, at least temporarily. We may see lenders continue risk mitigation alerts, scanning mortgage applications for borrowers who could be impacted by further layoffs.

US Strikes a Deal with the U.K

The U.S. and the U.K. agreed on a framework for a deal lessening U.S. tariffs. It would drop tariffs on U.K. vehicle exports to 10% from 27.5%, and erase the 25%tariffs on steel and aluminum. However, the baseline 10% tariff on most U.K. goods will remain.

In exchange, the U.K. will allow more beef and ethanol imports from the U.S. and will work to streamline the processing of U.S. goods through customs.

Current Interest Rates

CONVENTIONAL

• 5 year fixed, 30 yr amortization – 4.39%
• 3 year fixed, 30 yr amortization – 4.59%
• 2 year fixed, 30 yr amortization – 4.84%
• 5 year variable, 30 yr amortization – Prime – 0.40% = 4.55%
• 5 year fixed, 25 yr amortization – 4.29%
• 3 year fixed, 25 yr amortization – 4.49%
• 2 year fixed, 25 yr amortization – 4.74%
• 5 year variable, 25 yr amortization – Prime – 0.50% = 4.45%

INSURED

• 5 year fixed, up to 30 yr amortization – 4.19%
• 4 year fixed, up to 30 amortization – 4.24%
• 3 year fixed, up to 30 amortization – 4.14%
• 5 year variable, up to 30 amortization – Prime – .70% = 4.25%

Fast Facts

• 14% – Share of the average Canadian’s monthly income that goes toward car expenses.  Car ownership costs have jumped 9% to $5,497 annually compared to last year.
• 395,000 – Permanent resident spots available in Canada this year. The scarcity of spots has led some of the 3 million temporary residents to learn French to boost their odds of gaining PR.
• $20.9 billion – Total price tag of Canada’s small modular reactor project in Ontario. The province approved plans to begin building the nuclear reactors, the first of their kind in any G7 country.