Daily market snapshot

• Stocks start the week mixed as trade remains in focus – The TSX traded lower while U.S. equity markets rose on Monday as U.S. and China officials met in London. Trade talks focused on easing tensions around technology and rare earth minerals, with additional negotiations scheduled for tomorrow.* Consumer discretionary and materials stocks posted the largest gains, while the utility and financial sectors were laggards. In international markets, Asia was mostly higher, despite China export growth for May missing expectations. China turned to other markets to offset a 34% drop in shipments to the U.S., the largest monthly decline since the COVID-19 pandemic.* Europe was broadly lower*. The U.S. dollar declined against major international currencies. In commodity markets, WTI oil traded higher, extending gains in recent weeks.*
   
• Bond yields mixed – Bond yields were mixed, with the 10-year Government of Canada yield up to 3.36% and the 10-year U.S. Treasury yield down near 4.48%. Concerns over U.S. government deficits and debt have helped drive bond-market volatility higher in recent months, though yields have pulled back from their late-May peak. Bond markets continue to price in expectations for two Fed interest-rate cuts this year and an additional two next year**, about in line with the Fed's own forecast.*** While the potential for higher inflation over the coming months due to tariffs should keep the Fed on the sidelines a while longer, lower interest rates should help reduce borrowing costs for consumers and businesses, which would be supportive of the economy and corporate profits, in our view.
   
• Markets await CPI inflation this week – U.S. consumer price index (CPI) inflation for May will be released on Wednesday, with forecasts calling for inflation to rise to 2.5% annualized, up from 2.3% through April.* Core CPI, which excludes more-volatile food and energy prices, is expected to tick up to 2.9%, compared with 2.8% the prior month.* While both measures have declined for three consecutive months, estimates pointing to a reversal likely reflect the early impact of tariffs flowing through the supply chain to consumer prices, in our view. We expect tariffs to put some upward pressure on inflation, as higher import costs are at least partially passed along to consumers. However, most of this impact should be near-term price hikes that aren't an ongoing driver of inflation, in our view. Bond markets are pricing in inflation of about 2.31% over the next 10 years, indicating that long-term inflation expectations appear to remain well anchored.****

Brian Therien, CFA
Investment Strategy

^{*FactSet **CME Fedwatch ***U.S. Federal Reserve ****Federal Reserve Bank of St. Louis}

• North American equities rally following healthy jobs data – North American equity markets closed higher on Friday, following better-than-expected payrolls reports in the U.S. and Canada for May. Employment grew by 8,800 in Canada during May, better than expectations of a 1,500 gain, while the unemployment rate rose to 7%.* In the U.S., nonfarm payrolls rose by 139,000 in May, above expectations for a 130,000 gain, while the unemployment rate held steady at 4.2%.* Leadership was broad-based, with all 11 sectors of the S&P 500 finishing the day higher, led by energy and communication services.* Bond yields rose following the jobs data, with the 10-year U.S. Treasury closing around the 4.5% mark, while the 10-year GoC yield ticked higher to around 3.35%.*
   
• Employment growth exceeds expectations; unemployment rate ticks higher – The May labour-force survey showed that Canadian employment rose by 8,800 in May, above expectations for a 1,500 gain and above the April reading of 7,400.* However, the rise in employment was not enough to offset a tick higher in unemployment and labour-force growth, pushing the unemployment rate up to 7%, the highest since 2021.* South of the border, the May U.S. jobs data showed that nonfarm payrolls rose by 139,000 for the month, above expectations for a 130,000 rise.* Despite signs of healthy job growth in May, U.S. payroll growth for April and March were revised lower by a total of 95,000, taking some of the shine off of the better-than-expected May report.** In addition to the payroll data, the U.S. unemployment rate held steady at 4.2% for the third consecutive month, as a decline in the household measure of employment was offset by a decline in the labour force.* Overall, we'd characterize today's reports as evidence that labour-market conditions continue to ease but remain broadly healthy. From a monetary-policy standpoint, we believe today's report gives the Fed and Bank of Canada further reason to hold rates steady in the near term and assess the economic impact of recent policy changes. In our view, both central banks will resume interest-rate cuts in the back half of this year.
   
• Strong first-quarter earnings season winds down – First-quarter earnings season is winding down, with tech-giant Broadcom and athletic-apparel retailer Lululemon among the last companies in the S&P 500 to report first-quarter results yesterday. Both companies modestly exceeded sales and earnings expectations, closing out what's been a strong earnings season for North American companies. The S&P 500 is set to post earnings growth of nearly 13% in the first quarter, marking the third time in the past four quarters the index has seen double-digit earnings growth.* Earnings growth has been strong in Canada as well, with TSX earnings on pace to grow by 13% in the first quarter.* While earnings estimates have been revised lower for the quarters ahead, full-year estimates are still calling for earnings growth of around 9% for the S&P 500 and 8% for the TSX.* In our view, single-digit earnings growth is attainable in 2025, given the resilient economic backdrop, which should offer support to equity markets amid the uncertain policy environment.

Brock Weimer, CFA
Investment Strategy

^{*FactSet **Bureau of Labor Statistics}

• U.S. equity markets stumble – U.S. stocks were down today, led by a 15% decline in Tesla* after President Trump threatened to cancel government contracts and subsidies for the auto and clean energy company*. This undermined a market rally seen earlier in the day following reports of a constructive phone call between U.S. President Trump and Chinese President Xi Jinping on trade. Trump commented after that "we're in very good shape with China and the trade deal", helping to raise hopes that we may see a further cooling in trade tensions between the world's largest economies. These sentiments helped support a generally better tone in international equity markets, with Canadian and European stocks delivering small gains by their respective closes. U.S. government bond yields meanwhile ended the day modestly higher, consistent with the small increases in yields seen across most sovereign bond markets.
   
• Signs of the trade war becoming clearer in U.S. data – The surge in U.S. imports seen in early 2025, as companies looked to front run tariffs, is starting to reverse.* A collapse in imports in April triggered a significant tightening in the U.S. trade deficit, which is likely to be sustained over the coming months. This should deliver a material boost to second-quarter U.S. GDP growth, in our view, but looking through this volatility, the economy appears to be feeling the effect of dramatic shifts in trade policy. Initial unemployment insurance claims increased again last week, and continuing claims remain high, potentially pointing to a cooling labour market. Similarly, according to Challenger, job-cut announcements continue to run at elevated levels, with more sectors reporting layoffs. These data appear to be adding to uncertainty around the health of the labour market ahead of tomorrow's U.S. nonfarm-payrolls report.
   
• Jobs data in focus – Markets will be watching the U.S. labour report tomorrow carefully for signs that the cracks emerging in ADP hiring data and unemployment-insurance claims this week are visible in the benchmark labour-market release. The consensus is for payroll gains to slow in May, but remain relatively healthy at 125,000, and for the unemployment rate to be unchanged at 4.2%.* However, in our view, a downside surprise would be a concern for the Fed, which has taken comfort from the resilience of the economy in 2025 thus far, especially should inflation data start to accelerate in the coming months as we expect. Against this challenging backdrop we think the Fed will remain on hold until September before cutting rates, consistent with market pricing* at present.

James McCann
Investment Strategy

^*Bloomberg

• Stocks finish mixed following Bank of Canada interest-rate decision – Canadian equity markets closed modestly lower following the Bank of Canada's (BoC) decision to hold its policy rate steady at today's meeting.* South of the border, the U.S. ADP private-payroll survey showed that private payrolls expanded at a lower-than-expected pace in May, perhaps signaling softening labour-market conditions.* In addition to the soft U.S. jobs data, the ISM services PMI for May was below expectations, falling to 49.9 and signaling that activity stagnated in the services sector of the U.S. economy last month.* Bond yields were little changed in Canada, while U.S. bond yields declined in response to the softer-than-expected economic data, with the 10-year U.S. Treasury yield finishing the day around the 4.36% mark.* U.S. equity markets were little changed, with the S&P 500 finishing near the flatline and the Nasdaq posting a modest gain.* Overseas, European markets traded higher ahead of Thursday's European Central Bank interest-rate decision, while markets in Asia were mostly higher overnight.*
   
• Bank of Canada holds rates steady – As expected, the Bank of Canada held its overnight rate steady at 2.75% in today's meeting.** While headline inflation rose by a modest 1.7% annually in April, measures of core inflation, such as CPI-trim and CPI-median, posted annual gains in April of over 3%, perhaps signaling that core-price pressures remain persistent.* In its press release, the BoC acknowledged that these measures of core inflation moved higher in April, supporting the case to maintain the policy rate at 2.75%.** The BoC also acknowledged the better-than-expected first-quarter GDP reading, although much of this was attributable to a pull-forward of exports to the U.S. to front-run tariffs.** Measures of domestic demand were more subdued, with household consumption growing by a modest 1.2% in the first quarter and investment contracting by 3%, driven by weakness in residential investment.* With the boost from exports unlikely to be repeated in the months ahead, we expect Canadian GDP growth to slow in the second quarter. Under this backdrop, we believe the BoC will continue easing policy in 2025, perhaps delivering an additional one to two rate cuts before year-end.
   
• U.S. jobs data in focus – Labour-market data is front and center for markets this week, with the U.S. ADP private-employment survey for May showing that private payrolls expanded by 37,000, well below expectations for a gain of 130,000 and the lowest monthly gain since March 2023.* The softer-than-expected jobs growth from this morning's report could provide some early evidence that firms are beginning to exercise caution when it comes to hiring amid the uncertain policy and economic backdrop. However, the ADP data follows a better-than-expected JOLTS job openings report yesterday, which showed that U.S. job openings rose to 7.4 million in April, modestly above the March reading of 7.2 million.* While the data is backward-looking, the uptick in job openings suggests that demand for labour remains healthy, in our view. Our expectation is for labour-market conditions to ease from current levels as economic growth potential slows amid the uncertain policy backdrop. But given the U.S. labour market is entering this period from a position of strength, we expect any softening over the coming months to be orderly. Friday will provide a read on trends in the domestic labour market with the release of the labour force survey for May.

Brock Weimer, CFA
Investment Strategy

^{Source: *FactSet **Bank of Canada June 4, 2025, Monetary Policy Decision}

• Nasdaq leads stocks higher – The TSX and U.S. equity markets closed higher on Tuesday, with technology and energy stocks leading to the upside. On the trade front, President Trump signed an executive order doubling steel and aluminum tariffs to 50%.* The Trump administration has also reportedly requested that countries provide their best offers on negotiations by tomorrow, as officials look to accelerate talks ahead of the 90-day tariff pause ending on July 9.* Bond yields rose, with the 10-year Government of Canada yields at 3.26% and the 10-year U.S. Treasury yield at 4.45%.* The Bank of Canada concludes its June monetary-policy meeting tomorrow, with markets widely expecting the central bank to hold its policy rate steady at 2.75%.* In international markets, Asia finished mixed overnight, as China's manufacturing activity fell sharply into contraction territory in May*. Europe was up modestly, as unemployment ticked down to 6.2% in April, as expected. Preliminary eurozone CPI inflation dropped to 1.9% in May, falling below the European Central Bank's 2% target, likely giving the central bank the go ahead to cut its policy rate on Thursday of this week, in our view. The U.S. dollar advanced against major international currencies. In commodity markets, WTI oil added to yesterday's gains on heightened geopolitical tensions as Ukraine conducted drone attacks deep within Russia. Iran also appears set to reject a U.S. nuclear proposal that would be critical to easing sanctions on the country's oil production*.
   
• U.S. job openings higher than expected – Job openings rose to 7.4 million in April, above forecasts for 7.1 million*. The number of people voluntarily leaving their jobs (quits) declined modestly to 3.2 million, while layoffs rose to 1.8 million**. These readings reflect a healthy labour market, in our view, as job openings exceed unemployment of about 7.2 million. We expect wage gains, on average, to remain above the pace of inflation, which should be supportive of consumer spending and the economy, in our view. Total nonfarm payrolls will provide a deeper look at the labour market on Friday, with estimates calling for 130,000 jobs created in May and the unemployment rate expected to hold steady at 4.2%*.
   
• U.S. manufacturing activity below estimates – New orders for manufactured goods were down 3.7% in April, modestly below expectations for a 3.0% decline, following four consecutive months of increases.* Shipments edged lower by 0.3%, while inventories were down***, reversing six months of increases, as companies drew down inputs that had been bolstered ahead of tariffs. While these readings were slightly weaker than expected, combined with other recent data, the manufacturing sector appears to be generally stable, which should help provide broader support for the economy and the labour market, in our view.

Brian Therien, CFA
Investment Strategy

^{Source: *FactSet **U.S. Bureau of Labor Statistics ***U.S. Census Bureau}