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When Less Bad Is Good

Jun. 12, 2020 6:26 AM ETEWC, BBCA, FCAN, HEWC, ZCAN, FLCA
Kurt Reiman profile picture
Kurt Reiman


  • While the labour market is still feeling the pain from the initial shock as many workers remain underutilized, last month's improvement moved forward the expected eventual recovery.
  • The rotation in the TSX wasn't principally a function of the better-than-expected turn of events in Canada but rather the outright positive developments overseas that made the most difference.
  • We prefer the risk-adjusted performance profile of global corporate credit over stocks for the higher income potential and seniority in the capital structure.

By Kurt Reiman, Daniel Donato

Data surprised to the upside in Canada, and the Bank of Canada took a less cautious - but still cautious - tone last week. But it's the improved situation overseas that has had the more important effect on lifting Canadian stocks in recent weeks.

Last Friday's labour market report from Statistics Canada forced a double take. In May, the Canadian economy added 290K jobs, versus an expected further decline of 500K, and hours worked rose by 6.3% on a month-over-month basis. Together, these gains represent a 10% recovery of lost jobs and reduced hours since the pandemic lockdowns began. The unemployment rate edged up to a record high of 13.7%, though this was because more Canadians were actively searching for work - an encouraging sign. While the labour market is still feeling the pain from the initial shock as many workers remain underutilized, last month's improvement moved forward the expected eventual recovery.

At its policy meeting last week, the Bank of Canada (BoC) also stated it believes the worst of the economic shutdown measures are now in the rearview mirror, even as it cautions that Canadian GDP could fall another 10-20% in the second quarter, with activity improving thereafter. As widely anticipated, the BoC held the overnight rate steady and announced no changes to its large-scale asset purchase program. That said, the Bank scaled back its open-market operations aimed at boosting financial market liquidity as conditions had already started to improve (see chart below).

Encouraging economic data releases and a more constructive tone from policymakers coincide with continued Canadian equity market strength and a recent pivot into cyclical, value-oriented stocks (see chart below). As of last Friday, the S&P/TSX Composite Index (TSX) had risen more than 40% since troughing on March 23 and is merely 13% below its pre-Covid-19 high. While the equity market's

This article was written by

Kurt Reiman profile picture
Kurt Reiman, is BlackRock’s Chief Investment Strategist for Canada. Previously, Mr. Reiman’s held a role as a Global Investment Strategist for BlackRock where his responsibilities included relating the Investment Strategy Team's research and investment views to key institutional and financial advisor clients and offering perspective on all asset classes - including equities, fixed income, alternatives and multi-sector approaches to investing. Mr. Reiman joined the firm in 2013 with over 15 years of experience in investment research and strategy. Prior to joining BlackRock, he was the Head of Thematic Research at UBS Wealth Management in Zurich and New York. Mr. Reiman also held analyst positions at Reuters and the G7 Group. Mr. Reiman earned a BS degree in business and economics from the State University of New York College at Plattsburgh and his MS degree in international relations with a concentration in international economics from the Johns Hopkins University School of Advanced International Stud

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