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The Globe and Mail: June Job Losses Increase July Rate Cut Chances

The Globe and Mail: June Job Losses Increase July Rate Cut Chances

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    The Globe and Mail: June Job Losses Increase July Rate Cut Chances

    Last week, the Globe and Mail, Reuters and RBC reported that central banks in Canada and the US grapple with conflicting economic indicators. When analyzing data in Canada, it is essential to consider the potential impact of events in the US, as a slowdown or acceleration stateside could significantly affect borrowers north of the border.

    • Lowered unemployment paired with wage growth increases uncertainty for central bankers as unemployment increases.
    • Canada and the US are taking different approaches to managing inflation.
    • US economic and political data affect Canadian mortgage rates more than homegrown data.

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    In May, inflation data surprised the two countries differently, with Canada seeing an increase and the US noting a slight decrease. However, the labour market data for June, released on Friday in both countries, offered clarity on the economic slowdown, renewing optimism for lower mortgage rates. Following the labour market news, Canadian money markets increased the chance of a rate cut to more than half early on Monday morning, with a further increase of a 50bps cut for September.

    Canada: Signs Pointing Towards Rate Cuts

    The Canadian job market displayed signs of slowing down in June, with a net decrease of 1,400 jobs. This is the second time in 4 months that employment has declined. The unemployment rate also rose to 6.4%, exceeding economists’ expectations and reaching a level not seen in over 29 months. This increase, combined with a decrease in hiring demand, has raised the possibility of the Bank of Canada cutting the national benchmark policy rate in its upcoming July 24th meeting.

    A closer examination of the data reveals a shift in the types of jobs being affected. While manufacturing and office work have seen losses, the fast food and accommodation sectors have experienced gains. This shift highlights the evolving nature of the job market.

    Wage Growth Presents a Double-Edged Sword

    The Bank of Canada may find some relief from inflation concerns as the job market slows, but the wage growth problem continues to be a concern. In June, average hourly wages rose 5.4% compared to the previous year, higher than the 5.1% increase observed in May. This consistent wage growth suggests underlying inflationary pressures that could challenge the Bank of Canada’s policy decisions.

    A More Cautious Approach from the US Fed

    In June, the US labour market experienced slower growth, adding only 206,000 new jobs. Despite this, the US job market remains stronger than Canada’s. The unemployment rate in the US increased to 4.1%, but the jobless rate acceleration was not as rapid as in Canada.

    The Federal Reserve (Fed) is aware of the slowdown but is unlikely to reduce rates immediately. The US economy is currently in a “Goldilocks” zone – not strong enough to warrant rate hikes but also not weak enough for rate cuts. The Fed is probably waiting to observe how inflation progresses and for a clearer indication of a slowdown before making any adjustments to monetary policy.

    Impact on Mortgage Rates

    The Bank of Canada’s decision on policy interest rates could significantly impact variable mortgage rates and the housing market throughout Canada. A potential rate cut in July could lower lenders’ prime rates and make it more affordable for Canadians to borrow money for home purchases. However, the relationship between inflation and wage growth adds some unpredictability. The BoC must strike a balance between controlling inflation and promoting economic growth.

    Similarly, the US Federal Reserve’s position on interest rates will also affect Canadian fixed mortgage rates. Even though a rate cut is not expected until December, any indications from the Fed about the future direction of interest rates could influence how Canadian money markets and mortgage lenders set their rates. 

    The Bottom Line

    The labour market data indicates a slowdown in the US and Canadian economies, but the central banks of each country are expected to make different decisions. The Bank of Canada may continue to reduce rates, while the Fed is anticipated to wait and observe. These choices will significantly reduce mortgage payments in both countries, potentially relieving Canadian borrowers before those in the US.

    Economic conditions constantly change, and political events and central bank actions can affect mortgage rates in Québec, Ontario, Alberta and the rest of the country. The recent increase in US and Canadian bond yields following the presidential debate highlights this. The bond yields lowered, reversing their gains to reflect the slowing labour market data by the week’s end. Staying up-to-date with how news and data can influence central bank policies will help you make better decisions about your mortgage strategy.

    When you’re ready to secure the best mortgage rate, nesto’s mortgage experts can assist you. Our simplified, fully digital mortgage process lets us focus on finding the right solution for your unique needs, starting by offering you our lowest rates. 

    Why Choose nesto

    At nesto, our commission-free mortgage experts, certified in multiple provinces, provide exceptional advice and service that exceeds industry standards. Our mortgage experts are non-commissioned salaried employees who provide impartial guidance on mortgage options tailored to your needs and are evaluated based on client satisfaction and advice quality. nesto aims to transform the mortgage industry by providing honest advice and competitive rates using a 100% fully digital, transparent, seamless process.

    nesto is on a mission to offer a positive, empowering and transparent property financing experience – simplified from start to finish.

    Contact our licensed and knowledgeable mortgage experts to find your best mortgage rate in Canada.


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