This time last week Canadian investors were preparing for the unofficial start of summer ahead of a holiday shortened week here. And look how that turned out — with the TSX losing a total of more than 400 points over the last four days! At least the TSX signed off this Friday with gains of 146.23 points, but it still recorded its fifth straight losing week and May could turn out to be the worst performing month of 2023 so far.
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It is now the turn of investors in the United States to prepare for the unofficial start of summer there, ahead of the Memorial Day holiday on Monday. Then will come four days of key economic releases and events.
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In the U.S., CIBC’s Avery Shenfeld is expecting to see the “ink on a deal” to raise the debt ceiling early in the week.
Other than that, CIBC expects Fed speakers will show a “degree of hawkishness” in the wake of recent data. CIBC said the signals ahead of the factory ISM next Thursday are “a bit puzzling, since we’ve seen a weakening in regional indexes, but firmness in durable orders”. CIBC’s call for payrolls and wages on Friday “isn’t quite as soft” as the consensus. And as always, CIBC added, the jobs data has the greatest potential to ‘move the needle’ for markets.
Meanwhile, after trailing U.S. growth over the latter half of 2022, Canada’s growth in Q1 looks set to show on Wednesday next a doubling of the pace recorded in the States, according to CIBC’s Shenfeld, although he did also say the two countries seem likely to swap places again in Q2. Shenfeld said the weak end to Canada’s first quarter, including a dip in March GDP, will be part of that story, alongside various disruptions that will plague the second quarter pace. That could be one key to keeping the Bank of Canada on hold if the Fed goes ahead with a rate hike in June or July, he added.
Douglas Porter, Chief Economist at BMO Economics, noted it was a light week for Canadian economic news, with most of the attention on the “slew” of quarterly bank earnings — which “broadly disappointed.” But, he also noted, that didn’t stop the market from pricing in higher odds of a BoC rate hike this summer, partly in sympathy with the shifting outlook on the Fed, but also with domestic news doing little to dissuade the trend. Porter said a strong 1.6% rise in the flash reading for April wholesale trade, and a small rise in consumer confidence, hint that the Canadian economy is also “holding up” so far in Q2. However, he added, that underlying reality may be “blurred” by the one-two hit to growth from the public sector strike in April, and the wildfire drag on Alberta oil production in May.
Porter noted the big news for Canada next week will be the GDP release for Q1 and the preliminary read on April. He said output is expected to start Q2 on a “soft note” after a “surprisingly sturdy” 2.5% rise in Q1. But after the dust settles on the special factors, he added, Canadian growth is likely to emerge with more “underlying firmness” than previously expected. And, he noted, a key source of that resiliency is the housing market. Accordingly, BMO will be watching the earliest reports on home sales for May which will begin flowing in late next week. “If the market shows more signs of recovery, that will fuel the growing odds that the Bank of Canada gets back in the tightening game,” Porter said.
Possibly helping the overall market mini-recovery today, both gold and oil closed higher as the Biden Administration and House Republican are said to be nearing a deal to raise the U.S. debt ceiling, while a key U.S. inflation measure rose more than expected last month.
Gold edged higher as the dollar steadied and bond yields rose. Gold for August delivery was closed up US$0.80 to settle at US$1,963.10 per ounce.
WTI crude oil also closed higher on Friday on mixed signals from OPEC+ over whether further production cuts are planned when its stages its ministerial meeting next month. WTI crude oil for July delivery closed up US$0.85 to settle at US$72.67 per barrel. July Brent crude, the global benchmark, was last seen up US$0.53 to US$76.79.
In terms of individual stocks in the news, National Bank Financial on Friday maintained its Outperform rating on the shares of Suncor Energy (SU.TO, SU) while trimming its price target to C$60 from C$61.00 after ConocoPhillips said it will exercise its right of first refusal on TotalEnergies 50% share of the Surmont oil sands project, which had been part of Suncor’s C$5.5 billion offer for TotalEnergy’s oil sand assets, which included the Surmont stake and the French company’s interest in Suncor’s Fort Hills oil sands mine.