Today the big nonfarm payrolls report traders have been looking to all week finally arrives. Fed speakers have been trying to keep June open as a live meeting for a rate hike depending on data. With ADP payrolls having disappointed, nonfarm payrolls could set the tone for Fed speculation for the coming weeks. That being said, there is another job report due before the next Fed meeting. I also think that a June rate decision will be driven more by whether the Fed still means to get in two hikes this year or not. July, September and October are pretty much out for Fed moves because the central bank usually tries to stay out of election campaigns, and this one looks like it could be particularly contentious.

For the US, jobless claims were running low through the month suggesting a robust job market but retail sales, industrial production, personal spending and other indicators suggest a growing economy but not a barnburner. ADP payrolls came in low (156K vs street 195K) and I suspect we could see a moderate miss for nonfarms as well. I’m thinking 175K with a small downward revision of 5K to last month.  


Canada added 40K jobs last month and a retrenchment is common the month after. A pickup in Canada’s economy last month shown by another rise in manufacturing PMI and rising energy prices suggests Canada’s economy continues to transition away from a dependence on oil although a rising loonie may have had some impact on exports. Overall, I think the drop back to 2K job growth the street is expecting looks a bit much, I think we could see job creation of 10K more balanced between full and part time.

As we saw following diverging trade balances on Wednesday, trading between USD and CAD could be active on payrolls reports depending on the results. CAD may remain active through the day with another Canada PMI report due and oil markets still staging significant swings.


Crude oil has been rising again this morning off another higher low although not as much as yesterday. Oil sands production remains in focus as raging wildfires in Canada’s oil sands producing region have forced over 80,000 people to be evacuated from the City of Fort McMurray where many of the people who work in the oil sands projects live.

Although the fires appear to be south of the main mines, with some of the oil sands sites having become shelters for thousands of people and their workforces having been displaced by the fires, oil sands operations have been forced to stop or slow production. So far about 500,000 bbl/d day has been impacted which could go up over a million should this disaster worsen. Suncor Energy’s shares fell about 3% yesterday.

Fort McMurray and the oil sands operations are in an isolated region with limited road access, the nearest small towns a two hour drive away and the nearest major city, Edmonton, a five hour drive away. The fires are still raging with firefighters working to protect key infrastructure, but with so much damage done already it’s clear that once the fires do end, it’s going to take quite some time for everyone to get back up on their feet again.

The impact of the oil and gas sector’s struggles on banks has also been in focus in the last day or so. National Bank of Canada announced it is taking a $250 million provision for credit losses from the oil patch in its next earnings report, a $0.54 hit to earnings per share essentially cutting earnings in half.

Traders have been increasingly worried lately about what the oil crash could mean for companies’ ability to repay their debts. Some have gone so far to worry that underperforming oilfield loans could spark another financial crisis. Today’s trading action suggests these worries may be overblown. With every reason to collapse, National’s shares fell only 1.5% and no other bank stocks were impacted. This suggests that the flat to lower trend in bank stocks over the last 18 months has likely already priced in oilfield loss exposure.


Corporate News

Activision Blizzard    $0.23 vs street $0.12, sales $908M vs street $813M, guides next Q $0.38 above street $0.34


Economic News

Significant announcements released overnight include:

Australia construction PMI        50.8 vs previous 45.2

Japan Nikkei service PMI        49.3 vs previous 50.0

Spain industrial output            2.8% vs street 1.5%


Announcements due later today include:

8:30 am EDT        US nonfarm payrolls            street 200K
8:30 am EDT        US previous month revision        from 215K
8:30 am EDT        US 2 month payrolls net revision
8:30 am EDT        US private payrolls            street 195K
8:30 am EDT        US manufacturing payrolls        street (5K) vs previous (29K)
8:30 am EDT        US unemployment rate            street 4.9%
8:30 am EDT        US average hourly earnings        street 2.4%


8:30 am EDT        Canada employment change        street 2K vs previous 40K
8:30 am EDT        Canada full-time jobs            previous 35K
8:30 am EDT        Canada part-time jobs            previous 5K
8:30 am EDT        Canada unemployment rate        street 7.2%

10:00 am EDT        Canada Ivey PMI            street 52.3

On the weekend    China trade balance            street $40.0B
            China exports                street (0.5%) vs previous 11.5%
            China imports                street (4.0%) vs previous (7.6%)