Weekly Market Commentary June 12 2025

Canada Labour Market and Economy in Peril

The uncertainty triggered by the U.S. tariffs is becoming increasingly apparent. Canada's unemployment rate rose to 7% in May, its highest level in over eight years, and is the earliest indication that the economy is not doing well. Since February, the unemployment rate has risen by 0.4%, even with the Bank of Canada cutting interest rates to stimulate the economy.

After suffering setbacks in March and April, the wholesale and retail trade sector recovered to take the lead in growth last month, adding 43,000 new jobs. May also saw improvements in culture, recreation, and information sectors.

According to StatCan, 32,000 jobs were lost in public administration, countering increases in the sector linked to the April federal election and leading industry losses. Last month, jobs were lost in the transportation, warehousing, lodging, and food services sectors.

Job postings are steady but down in regions struck by the U.S. 25% tariff. Saint John, Sault Ste. Marie (Ontario), and Windsor (Ontario) are some areas feeling the full brunt of the U.S. tariff stalemate. For starters, Windsor’s unemployment rate has already climbed to 10.8% as the city grapples with economic uncertainty triggered by tariffs on motor vehicles and parts.

Deterioration in the labour market should remain in the Bank of Canada's mind for the next few months. The focus will be on how the U.S. trade uncertainty influences the various sectors of the economy. The central bank has already been forced to hold the benchmark rate at 2.75% on core inflation coming in hotter than expected.

The Canadian central bank has reiterated that it could be forced to cut, should the economy weaken further in the face of tariffs. Governor Tiff Macklem has already affirmed that the trade conflict instigated by President Donald Trump remains the biggest headwind facing the economy. The remarks come following the U.S. president doubling tariffs on imports of Canadian steel and aluminum to 50%.

Meanwhile, since President Donald Trump's Liberation Day, the Canadian currency has gained 3% compared to the U.S. dollar, despite indications that the economy is contracting. With the Canadian dollar forecast to reach 74 cents in the U.S. by the end of this year and nearly 77 cents by the end of next, the difference will continue to widen in the upcoming months. Instead of the Canadian currency strengthening, the forecast is predicated on the U.S. dollar declining.

Similarly, the Canadian stock market continues to edge higher, outperforming major indices in the U.S. The country’s main stock index has recouped most of the losses accrued in the first quarter and is back to record highs as if nothing happened.

Helped by gains in the IT energy and clean technology sectors, the Toronto Stock Exchange is already up by about 6% while trading at highs of 26,430. The gains have coincided with investors shunning the significant tariffs imposed on the country’s aluminum and steel.

The Markets

Employment was top of mind for financial markets last week.

Economists and investors hoped May employment information would provide an insight into the state of the United States economy, as well as clues about when the Federal Reserve (Fed) may lower the federal funds rate again.

Employment data arrives in two reports that offer different perspectives on the employment situation. Last week, the trends were similar – new jobs creation slowed from April to May – although the number of new jobs reported was quite different. Here’s a brief overview:

+37,000 new jobs per the ADP National Employment Report.Mid- week, this supplemental report showed fewer new jobs were added in May (37,000 new jobs) than had been created in April (62,000 new jobs).

“That was a big miss vis-a-vis what economists were expecting, and so we saw a negative market reaction initially. But if you talk to economists, guess what, they say that ADP number is not a very good predictor of the [Bureau of Labor Statistics] number, and they really give it much less weight, if any weight at all,” reported Julie Hyman of Yahoo!Finance.

+ 139,000 new jobs per the Bureau of Labor Statistics (BLS). On Friday, the government’s Employment Situation Summary reported more jobs were created than economists had anticipated. However, jobs growth slowed from April (147,000 new jobs) to May (139,000 new jobs), and initial estimates for March and April were revised lower.

“While the headline number came in higher than expected, previous months were revised lower — a pattern which has been repeating itself for a while now and which has prompted a lot of head-scratching,” reported Tracy Alloway and Joe Weisenthal of Bloomberg. The pair cited a source who believes one reason for the revisions is that key data about U.S. business closures and business openings arrives after the initial report is issued.

The unemployment rate, which is determined by a survey of households, remained steady at 4.2% in May. “…the household survey found a 625,000 decline in the labour force, which helps the jobless rate since those not in the workforce aren’t counted as unemployed,” reported Randall Forsyth of Barron’s.

So, what did the report tell us about the economy and prospective Fed rate policy? “Not as bad as feared but not as good as it looks. That’s what the latest employment data show. But for financial markets, the numbers suggest that the Federal Reserve may be slower to lower interest rates,” reported Forsyth.

By the end of the week, major U.S. stock indexes were all in positive territory year-to-date, reported Connor Smith of Barron’s. Yields on longer maturities of U.S. Treasuries moved higher over the week.

Source: FactSet

About Borrowing And Lending.

In the United States, many people engage in short-term borrowing. They use credit cards to acquire goods or services – springing for a dinner out, charging the cost of a new video game, or purchasing a replacement refrigerator. Then, they pay the money back. If the credit cardholder doesn’t reimburse the card provider in full each month, then they will owe interest on the money they’ve borrowed. Buying on credit is fast and convenient, and it can be quite profitable for the lender.

In China, the payment system can work differently. It’s more of a “pay now and buy later” approach where buyers lend their money to companies, reported The Economist.

“When you get a haircut or eat at a restaurant, the seller encourages you to pay in advance for multiple transactions. You might pay upfront for ten haircuts, or put 1,000 yuan ($140) on a pre-paid card, and the business will, in return, give you extra credit to spend… The bonus the firm adds to the customer’s deposit rises with the size of the initial outlay, and can be large. Customers putting down 10,000 yuan can receive an extra 2,000 yuan to spend in the store. If they use the money within a year, that amounts to an annual “interest” rate of 20 [%], paid in kind.”

Weekly Focus – Think About It

“The pleasure of rooting for Goliath is that you can expect to win. The pleasure of rooting for David is that, while you don’t know what to expect, you stand at least a chance of being inspired.”

– Michael Lewis, Author

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Disclaimer:

Information in this article is from sources believed to be reliable, however, we cannot represent that it is accurate or complete. It is provided as a general source of information and should not be considered personal investment advice or solicitation to buy or sell securities. The views are those of the author, Eric Muir and Derek Lacroix and not necessarily those of Raymond James Ltd. Investors considering any investment should consult with their Investment Advisor to ensure that it is suitable for the investor’s circumstances and risk tolerance before making any investment decision. Raymond James Ltd. is a Member Canadian Investor Protection Fund.