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business briefing

Briefing highlights

  • What the Canadian dollar does in April
  • Markets, loonie at a glance
  • Diplomacy?
  • Transcontinental to buy Coveris
  • What to expect from jobs report
  • What else to watch for this week

Cruel and kind

We’re entering that period when everyone dusts off their T.S. Eliot and tries to work in references to April being the cruelest month.

Not I.

April is actually the kindest month for the Canadian dollar. And Eliot wasn’t writing about fluctuations in foreign exchange rates, anyway.

But George Davis is. And he finds that, for the past decade, April has been the most humane month for the loonie against the U.S. dollar.

Which, if you flip it around, makes it the cruelest for the greenback against the loonie. And, for that matter, The Waste Land isn’t far off the mark where the Canadian dollar’s concerned. So perhaps Eliot was right, after all.

“Over the last 10 years, the month of April has displayed the most bullish seasonal tendency for the loonie,” said Mr. Davis, chief technical strategist at RBC Dominion Securities.

“Notably, April remains the most bearish month of the year seasonally for USD/CAD,” Mr. Davis said, referring to the U.S. versus the Canadian dollar by their symbols.

“Bullish seasonals for commodities in general – and crude oil in particular – tend to result in a weaker USD in April, with this cross-asset linkage weighing on USD/CAD,” he added.

Oil prices affect the Canadian currency, as does the difference in Canadian and American interest rates.

“Of the variables that we track, two-year CA-US interest rate differentials and crude oil prices have alternated roles over the last couple of years serving as the most significant drivers of CAD, with rate spreads currently more significant based on correlations,” Mr. Davis said later.

“So given that the seasonals were favouring a strong CAD in April, we did a deeper dive to try and understand what the drivers might be.”

(Alas, Mr. Davis got no help from that famous clairvoyante Madame Sosostris, who was laid low with a bad cold.)

What he found is that the two-year rate spreads have, on average, been flat over the last decade, meaning little impact on the loonie on that front.

“However, what does stand out is the role of commodities – with the [Commodity Research Bureau] displaying a bullish seasonal window from January through April, and April the second-most bullish month of the year,” he said.

“Oil also comes into play here, with a bullish seasonal window from February through April, and April being the most bullish month of the year as increasing demand and refinery shutdowns for maintenance and the switchover to summer-blend fuel ahead of the driving season play a factor here.”

In general, Mr. Davis added, there’s an “inverse relationship” between commodity prices and the greenback, highlighted by April being the cruelest month for the U.S. dollar index.

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Markets at a glance

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Diplomacy isn’t quite like this. But still

James Bond ejector seat
Source: MakeaGif
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The underbelly of the jobs market: The week ahead

Underbelly: An area vulnerable to attack

Oxford Living Dictionaries

Look beneath the top-line numbers, and study the underbelly of the labour market, when Statistics Canada releases its monthly jobs report Friday.

While Canada has been strong on the jobs front, with unemployment now at a four-decade low of 5.8 per cent, that underbelly tells a deeper story in these traditionally volatile reports.

Economists expect the federal statistics agency to report that the economy created between 10,000 and 20,000 jobs in March, with unemployment holding steady or possibly even dipping to 5.7 per cent.

This follows what Statistics Canada says was a massive loss of 88,000 jobs in January and then a gain of about 15,000 one month later.

Here’s where things stand as of the last report:

February employment was up 1.5 per cent from a year earlier, or by almost 285,000 positions, and all of them because of full-time work, so it’s hard to argue with that.

At the same time, the unemployment rate was down a nice 0.8 of a percentage point from the same period of 2017.

But here are other numbers worth considering, some not seasonally adjusted, and where analysts believe the jobs market is headed:

The number of people without work stood at 1.14 million, down from 1.15 million in January and marking a strong 11-per-cent drop from a year earlier.

Still, at times we can gloss over the fact that well over a million of us can’t find a job.

Another measure we often gloss over is Statistics Canada’s R8, a reading that includes “discouraged” job seekers, those waiting to be recalled or awaiting replies, and “involuntary part-timers.”

That number stood at 9 per cent in February. So for many Canadians, a 40-year low in the official unemployment rate is of little solace.

Economists expect the labour market to slow along with economic growth, but that doesn’t mean it won’t still be growing.

“January got 2018 off on the wrong foot in terms of job creation, but February’s modest rebound, coupled with a similar gain in March, should represent nascent signs of a decent, if not spectacular, year for job creation,” said Royce Mendes of CIBC World Markets.

Then there are wages.

“While this is likely the least meaningful of the four wage series that are available in Canada, a further deceleration from its previous peak would be in line with our view that the recent hot readings were more a product of volatility in the data,” Mr. Mendes said.

Bank of Montreal expects Friday’s report to show annual wage increases rose in March to 3.3 per cent from February’s 3.1 per cent. That, in turn, marked a dip from January’s 3.3 per cent, but these recent readings have been up markedly from last year.

“The large minimum wage hike in Ontario in January probably explains some of the recent strength, but wages were also up 2.9 per cent year-over-year outside of Ontario in February,” Royal Bank of Canada added in a lookahead.

David Madani, senior Canada economist at Capital Economics, looked at the issue by including other measures, and found that we’re basically getting nowhere.

“As things now stand, we estimate that nominal wages and salaries growth likely slowed to around 4 per cent quarter over quarter, annualized, in the first quarter of this year,” Mr. Madani said.

“If the above is accurate, then the reported increases in consumer prices, especially energy prices, means that real wages were largely unchanged in [the first quarter].”

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MONDAY: PULL IN YOUR FANGS

European markets are out of commission again, but we’ll see how North America fares after the tumult of last week closed out a loser of a quarter.

London’s FTSE 100, Germany’s DAX and the Paris CAC 40 lost between 2.7 and 8.2 per cent in the first three months, and Tokyo’s Nikkei about 7 per cent.

The S&P 500 shed more than 1 per cent, the Dow Jones Industrial Average 2.5 per cent, and the S&P/TSX Composite about 5 per cent.

The Nasdaq actually rose in the quarter, though the last couple of weeks have been ugly amid Facebook Inc.’s mounting troubles and market fears over how the tech sector will be regulated.

Investors have watched as the so-called FANG stocks of Facebook, Amazon.com, Netflix and Google parent Alphabet Inc. have suffered.

“Despite sliding over the past two weeks, technology is still among the top performers on a relative basis this year, with the Nasdaq clinging to positive territory; the sector is outperforming in both the S&P 500 and TSX; and tech is still up more than 20 per cent from a year ago on both sides of the border,” said BMO senior economist Robert Kavcic.

“But the temperature is falling quickly.”

We’ll also see several manufacturing purchasing managers index readings from around the world today.

Watch, too, for results from Callidus Capital Corp.

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TUESDAY: SECOND VERSE

Watch as Spotify makes its New York Stock Exchange debut, which reports say could value the Swedish streaming service company at more than US$20-billion.

Open this photo in gallery:

Christian Hartmann/Reuters

“After the success of the Dropbox IPO earlier in March, markets are now gearing up for [Spotify],” said CMC Markets chief analyst Michael Hewson.

“In normal circumstances when companies embark on an initial public offering (IPO), the process involves the issuing of new shares in the company in order to raise extra funds to either fund an expansion program, or to pay down debt.”

On the economic front, Europe catches up with manufacturing readings.

“The recent underperformance in European equity markets appears to speak to some concern that PMI data since the beginning of the year, as well as other indicators, has shown signs of softness, raising questions as to whether the best of the economic recovery in Europe could well be in the rear view mirror,” Mr. Hewson said.

“This week’s March manufacturing and services PMIs in China, Japan and Europe could well reinforce these concerns and keep investors cautious about the outlook, given how poorly markets in Europe and Japan have performed relative to their U.S. counterparts in recent weeks.”

Down under, the Reserve Bank of Australia is expected to hold its key rate steady at 1.5 per cent while “the policy statement will surely hint again that a rate hike is not around the corner,” said Capital Economics.

India’s central bank is also expected to hold rates steady, but “we think that elevated core inflation and looser fiscal policy will prompt the central bank to raise interest rates before too long,” said Shilan Shah of Capital Economics.

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WEDNESDAY: HUMP DAY

What better for a mellow Hump Day than the latest quarterly results from CannaRoyalty Corp.

Markets will also be watching for the ADP jobs report that precedes the government labour market release in the U.S., along with U.S. factory orders for February, expected to show a jump of 1.7 per cent from January.

Europe’s statistics agency also releases the latest look at inflation and jobs.

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THURSDAY: TRUMP DAY

President Donald Trump will no doubt be watching the latest trade numbers closely. Analysts forecast today’s report will show a slight easing of America’s trade deficit to a still-hefty US$56-billion in February, which could get the president tweeting again.

Statistics Canada will, at the same time, release our version of that report, which economists expect to show a fatter trade gap of $2.2-billion in January.

“Exports will benefit from a weaker [Canadian dollar] after peaking in late January,” said economists at Toronto-Dominion Bank.

“Elsewhere, a partial rebound in motor vehicles should help support headline exports after plant shutdowns led to a 13.1-per-cent decline in January,” they added.

“Real energy exports should rebound from a sharp decline in January but further declines in crude oil prices will weigh on nominal exports. Meanwhile, imports should see a broad rebound after falling over 4 per cent in January.”

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FRIDAY: JOBS

Watch how the loonie reacts to the Canadian jobs report as markets speculate on when the Bank of Canada will next raise interest rates. The currency bounced higher on the last inflation report, but then mellowed.

Along with Statistics Canada’s labour report comes the widely watched U.S. version, which is forecast to show job creation of about 185,000 in March and a dip in unemployment to just 4 per cent.

“In our forecast, we project the unemployment rate to fall to 3.4 per cent by yearend, which should result in more noticeable wage pressures as the labour market tightens well below full employment,” Deutsche Bank economists said in a lookahead.

Monsanto Co. also reports results, and Federal Reserve chief Jerome Powell closes out the week with an afternoon speech on the economy.

Open this photo in gallery:

Federal Reserve chairman Jerome PowellAlex Wong

“In general, we expect Powell to reiterate the upbeat outlook he presented at the March 21 [Fed] meeting,” Deutsche Bank economists said.

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