Analysts at TD Securities point out that the Canadian Q1 GDP extended the recent streak of sub-trend growth with another 0.4% print although the details were notably more upbeat and confirmed a rebound in domestic demand.

Key Quotes

“Stronger consumption and a rebound in business investment were encouraging signs that reduce the odds of 2019 rate cuts, but hikes are still a ways off given uncertainty from elevated trade tensions and substantial slack in the economy and we continue to view 1.75% as the top of this cycle.”

“We have seen some stabilization in the Toronto housing market although existing home sales continue to hold near a 7-year low at the national level while household leverage sits at a record high. Meanwhile, core inflation softened to 1.90% in April and will be hard pressed to recover given the muted growth backdrop and significant slack.”

“The labour market remains the one bright spot in the domestic economy, perplexingly, with the April LFS reporting monthly job creation of 106.5k which pushed the six-month average to 51k. Furthermore, wages have finally started to pick up off the lows with average hourly earning for permanent workers running at 2.6% y/y. While this should provide the BoC some comfort to remain on the sidelines as the market prices in cuts, it is not enough to return the Bank to a tightening path.”

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