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Will Weak Employment Impact the Bank of Canada’s Stance?

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Jul. 11 2016, Published 7:04 a.m. ET

Unemployment fell in June

Statistics Canada published the Canadian labor report on the same day as the US non-farm payroll release. The report suggested a fall of 700 jobs in June—compared to the forecast of a rise of 5,000 jobs after the previous month’s rise of 13,800 jobs. The weak labor release is important to investors, especially with the BOC (Bank of Canada) scheduled to meet on July 13. Markets would expect a dovish stance from the BOC with weak employment data putting more pressure on an already uncertain market following the Brexit vote. Currently, the BOC’s overnight rate stands at 0.50%.

The unemployment rate fell to 6.8% in June—compared to the market forecast of 7.0%.

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Sharp decline in construction and manufacturing jobs

Looking at the industry-based breakdown of the Canadian employment release, the construction and manufacturing sector saw the maximum loss in jobs. They fell by 29,000 and 13,000 jobs, respectively. Weakness in these sectors will concern the BOC. The fall in the previously mentioned sectors was mostly offset by the increase of 20,000 jobs in accommodation and food service. The information, culture, and recreation sector also posted a strong increase of 14,000 jobs.

Impact on the market

As for Canadian ETFs, the iShares MSCI Canada ETF (EWC) rose by 0.61% on July 8, following contrasting employment releases from Canada and the US.

Canadian banking ADRs (American depositary receipts) trading in US markets were also following a strengthening trend. The banking ADR Bank of Montreal (BMO), for example, rose by 0.70%. The Royal Bank of Canada (RY) and Bank of Nova Scotia (BNS) were trading higher by 0.59% and 0.58%, respectively. Also, Canadian Imperial Bank of Commerce (CM) saw a slight rise of 0.22% on July 8.

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