Canadian bond prices were weak for most of April, following the lead of US Treasuries. Investors appeared to become more comfortable with risk assets as worries about US protectionist trade policies and geo-political risks seemed to subside. In Canada, optimism around NAFTA negotiations contributed to lower bond prices and higher yields. Oil prices reaching levels not seen since 2015 also contributed to upward pressure on yields through higher inflation expectations. The FTSE TMX Canada Universe Bond Index declined -0.86% despite a slight tightening of provincial and corporate yield spreads.

Canadian economic news during the month was mixed. The economy added 32,000 jobs in March, however not enough to change the 5.8% unemployment rate. Economists continue to pay close attention to Ontario’s labour market following the increase in the minimum wage at the beginning of the year. Jobs were created in the province in the month but there was another decline in the number of part-time jobs. Housing starts remained strong. However, the trade deficit widened with a lower energy trade surplus and non-energy exports continuing to disappoint. In addition, retail sales were +0.4% m/m but ex-autos retail sales were flat on the month, which continued a string of soft numbers dating back to mid-last year. CPI was slightly below expectations with an unexpected fall in food prices. As broadly expected, the Bank of Canada did not change the overnight rate from 1.25% on April 18th.

US economic data was generally positive. First quarter 2018 GDP growth met expectations at 2.3%. ISM Manufacturing and Non-manufacturing Indices eased from high levels but remain at levels consistent with a healthy rate of expansion in the economy. The US trade deficit widened with growth in both imports and exports, with increasing imports reflecting strong domestic demand in the US. Retail sales exceeded expectations and CPI moved higher as expected. Housing starts were strong and industrial production exceed expectations on broad based gains. The 103,000 jobs created in March were lower than the consensus 185,000 expected increase. This followed an outsized gain of 326,000 in February. Despite the disappointing monthly number, the 3-month average is a healthy 202,000.

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