Market Update June 4

The Bank of Canada held its overnight rate steady at 2.75% for the second consecutive meeting, as it continues to monitor signs of economic weakness and the potential for government stimulus. Despite soft employment figures, a frozen housing market, and underlying signs of a slowing economy in Friday’s GDP release, the Bank is taking a wait-and-see approach.

The BoC statement emphasized the continued uncertainty surrounding U.S. trade policy, with tariffs fluctuating and new trade actions still being threatened. While U.S. inflation has edged lower, the Bank noted that the full price impact of tariffs has yet to materialize.

Canada’s Q1 GDP growth came in at 2.2% on Friday, buoyed by early exports and inventory accumulation. However, final domestic demand was flat—consumption slowed, housing activity contracted sharply, government spending declined, and unemployment rose to 6.9%.

Headline CPI inflation dropped to 1.7% in April, largely due to the elimination of the federal carbon tax, which shaved 0.6 percentage points from inflation. However, core inflation measures moved up slightly, and tariff-related cost pressures remain a concern.

The Bank’s decision to hold rates reflects its cautious stance amid conflicting economic signals—slowing domestic growth alongside persistent inflationary pressures. The Governing Council remains focused on balancing these risks while maintaining confidence in price stability.

In the U.S., ADP reported just 37,000 private-sector job gains in May, well below the projected 111,000. This marks the lowest reading in over two years and adds to mounting signs of a weakening labour market.

In the U.K., Prime Minister Keir Starmer expressed confidence that U.S. tariffs on British steel imports will be reduced to zero within weeks, avoiding a July deadline that could have raised tariffs to 50%. Although a tariff relief deal was agreed last month between Starmer and U.S. President Donald Trump—covering steel, aluminum, cars, beef, and ethanol—it has yet to be implemented. For now, the steel tariff remains at 25%.

Oil prices briefly dipped this morning as rain helped slow Canadian wildfires that had disrupted crude production. However, prices have since rebounded, now up 0.26% from yesterday’s close, and are tracking toward a third consecutive day of gains.

Safe-haven flows are supporting the Japanese Yen, with USD currently down 0.52% against JPY, as Bank of Japan rate hike speculation combines with geopolitical tensions.

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