Canadian Information Roundup

Recent Canadian information has been somewhat mixed. The Labour Force Survey for Apr was disappointing, but housing starts recovered. I hash out the economical information likewise every bit the solid position down of the Canadian inflation-linked bond market.


The unemployment charge per unit of measurement was unchanged at 6.9%, stuck close a grade it has been for a considerable time. Note that if the Canadian unemployment charge per unit of measurement is adjusted to follow United States of America concepts, it is 6.0%, which is slightly lower than the United States of America charge per unit of measurement of 6.3%. This is to last expected every bit the Canadian housing sector has non notwithstanding corrected to a pregnant extend. There was an estimated loss of 29,000 jobs on the month. Although that is a bad number, the information serial are a survey mensurate (corresponding to the Household Survey), in addition to is noisy from month-to-month. All that tin last safely concluded is that the labour marketplace is non improving much, which is all that is needed to snuff it along the Bank of Canada on hold.

Housing starts recovered inward April, going dorsum to a seasonally adjusted annual charge per unit of measurement of 176,000. Therefore it appears that the dip inward March was weather-related. As usual, the surge dorsum was inward the multiple units category, every bit unmarried unit of measurement (detached) structure remains at depressed levels. Note that these information are volatile, then it is in all likelihood best to aspect at them on a smoothed basis. There is no sign that the housing marketplace is collapsing, rather it is treading H2O piece the economic scheme is stuck inward an extremely irksome increase path.

Canadian Real Return Bonds

As a terminal note, I exhibit the Canadian Real Return Bond (RRB's) yield. These bonds are the forerunner of United States of America TIPS, in addition to pay a existent charge per unit of measurement of provide higher upward inflation. (See my primer on inflation-linked bonds.)  The breakeven inflation charge per unit of measurement (as approximated yesteryear using Bank of Canada data*) has been stuck close 2% for to a greater extent than or less time. It appears that large Canadian bond investors are extremely convinced that the Bank of Canada volition hitting its inflation target on average.

Historically, the Canadian 30-year breakeven traded higher upward 2%. This could last viewed every bit in that location beingness a direct chances premium higher upward the Bank of Canada inflation target. One interpretation is that the direct chances premium inside the breakeven charge per unit of measurement has disappeared.

Another interpretation is that investors are sensitive to the electrical current grade of carry. With inflation below 2%, in addition to non expected to rising whatever fourth dimension soon, breakevens may bring crept lower inward response. (It makes petty feel to merchandise a 30-year musical instrument based on short-term carry, but it appears that to a greater extent than or less people exercise then anyway.) Thus the lower breakeven charge per unit of measurement may last a reflection of an supposition of the structural malaise inward the Canadian economic scheme continuing. (Note that Canada solely issues 30-year inflation-linked bonds, in addition to then in that location is non much of a curt cease of the crimp to examine.)

Have a skillful weekend, in addition to Go Habs!

Footnote:

* I am taking the departure betwixt the Bank of Canada "long-term benchmark" yield series. I am non certain how skillful an approximation these plow over for the breakeven inflation rate. Looking at the historical data, it's in all likelihood alongside a dozen position down points of a to a greater extent than precise estimate. And if you lot are inward a seat to worry nigh a dozen position down points on the breakeven, you lot should bring access to meliorate yield information than I do.

See Also:

• My comments on RRSP strategies (for Canadians).
• My "big picture" sentiment on the Canadian economic scheme (spoiler: "doomed").

(c) Brian Romanchuk 2014