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CANADA: Risk To Three Consecutive BoC Cuts [2/2]

CANADA
  • We’d argue that the confirmation of major rail strikes starting today and further strike threats (730 dock foremen in the busiest port in Vancouver plus today’s vote to strike from 5,400 Air Canada pilots possibly from mid-Sept) is also helping limit impact from dovish data. 
  • The net implications are more nuanced landing with an economy already in excess supply vs port strikes last July, not least because there is greater risk of longer-term trade frictions limiting growth following large strikes in relatively quick succession. However, our bias would be that these are still net inflationary even if the BoC is increasingly focused on the demand angle. 
  • The length these rail strikes go on for is critical for economic impact and Trudeau has said the government will have an update shortly. 
  • In the interim, the Boc has time on its side to assess, having already cut a cumulative 50bps in June/July and no reasons not to cut 25bp again on Sep 4. Labor data are likely in the driving seat in the near-term, with the August jobs report released on Sep 6, but we continue to see current pricing of three consecutive 25bp cuts as more at risk of a temporary pause in Oct or Dec than dialling up the pace to a 50bp cut. 
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