Chart of the Week (COW)

The jobs market in Canada continues to undergo widespread change in the wake of the pandemic.

The good news is that the Canadian economy has added jobs in many of the industries that should pay long-term dividends for the country – science, technology, education. The bad news is that many services-related industries are suffering from a lack of available labor, which will continue to weigh on businesses of all sizes ability to operate and to hold down costs and prices.

Economic Update

On Wednesday, the Bank of Canada raised its benchmark lending rate 0.75%, bringing it to 3.25%, which is the highest level since 2008. The hike puts the BoC into restrictive territory (above its 2-3% targeted range); however, with inflation still running near 4-decade highs, the Bank is likely to continue raising rates into year-end. RBC Economics is currently forecasting one more 0.25% hike in October; although, they acknowledge that the BoC is likely to go further than that in the coming months and we would expect RBC Economics forecast to rise to something around a 4% terminal BoC rate.

The rate hikes are starting to take a bite out of various parts of the Canadian economy. We discussed housing a few weeks back and prices continue to pullback nationally, while the jobs market has begun to show signs of wear and tear. Canada announced August jobs this morning, which showed a loss of 40k jobs, marking the third consecutive month that the Canadian economy has shed jobs (June and July saw losses of 43k and 31k respectively). The unemployment rate rose from all-time lows of 4.9% to 5.4%; although, at 5.4%, the unemployment rate remains below its pre-Covid levels.

While the cumulative 114k of job losses over the past three months is demonstrative that the economy is showing definitive signs of slowing, the job market still remains very tight with wage growth still running above 5% and job availability metrics still reflecting a labor market that has lots of available jobs.

Market Update

After three consecutive weeks of losses, stocks look poised to finish higher for the week. Markets remain focused on inflation and the ultimate stopping point for interest rate hikes and thus we remain of the view that the next several months are likely to be filled with pronounced moves up and down until this stopping point becomes clearer.

To the positive, on the bond side, things have settled down over the past few months with most issues settling in a tight range following a difficult first part of 2022:

We believe that over the next 12-months, bonds are likely to generate positive returns with many now offering yields to maturity of ~4% to ~5%. As for stocks, while we think the next few months might continue to be a grind, we continue to believe that the longer-term outlook is favorable with many very good businesses trading at attractive valuations.