Market Watch: June 4

Meanwhile, major U.S. indexes finished fairly flat Tuesday after fresh data showed that U.S. manufacturing activity continues to be hampered by rising commodities prices and worker shortages in some industries.

However, U.S. indexes registered slight gains Wednesday, despite concerns around chronic inflation. A day after reaching the 20,000-mark, Canada’s main stock index was flat on Wednesday, surrendering 5 points.

News from the OECD reveals that inflation concerns aren’t limited to just the U.S.

Consumer prices across member countries rose at the fastest pace in more than 12 years, 3.3 per cent higher than in April 2020. That was the largest increase for the 36 mostly rich countries since October 2008.

U.S. stocks retreated Thursday as wary investors looked for signs of a corresponding jump in inflation–and trying to divine how it will affect Fed policy. By Thursday’s close, the Nasdaq fell 142 points, while the Dow and S&P dropped 23 and 15, respectively. In Canada, the TSX lost 30.

Finally, the U.S. jobs picture continues to improve. Initial jobless claims last week dropped to 385,000, a new pandemic low, while the non-farm private sector added 978,000 jobs in May, an increase of more than 200,000 versus April.

TSX, Dow Up Slightly; Nasdaq and S&P Lose Ground

For the four trading days covered in this report, the Dow added 48 points to close at 34,577, the S&P 500 fell 11 points to settle at 4,193, while the technology-heavy Nasdaq lost 135 points to close at 13,614. In Canada, the TSX rose 89 points to end at 19,941.

Strategy

Canada marks second consecutive jobs contraction, though reopening should bump June figures

The Canadian economy lost 68,000 jobs in May, adding to the 207,100 jobs lost in April, as the unemployment rate rose to 8.2 per cent from 8.1 per cent. The decline in May was largely part-time workers, who saw employment decline by 54,200 during the month, meanwhile full-time employment was down by 13,800. Hours worked were little changed during the month.

Overall, Canada’s economy remains 571,100 jobs shy of pre-pandemic levels. Interestingly, all categories by sector recorded an unadjusted gain except “other services.” Indeed, unadjusted job figures were up 289k in May, which is lower than the normal clip for a month of May. Other seasonal factors contributed to tamp down results and yield the -68,000 figure.

Overall, there were jobs created, but at a slower than seasonally normal pace coming out of the winter months. Notwithstanding the back-to-back monthly setbacks, we expect job growth to rebound as early as this month with many provinces relaxing containment measures and accelerating vaccine timelines.

We continue to expect the Bank of Canada (BoC) will look through the data and repeat similar lines about the prevalence of choppy data in the recovery. Restrictions should be eased into the June reference and result in a meaningful headline rebound next month.

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Market Watch: June 4

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