Canada Stocks Rise as Banks, Oil Rebound After U.S. Payrolls

(Bloomberg) -- Canadian stocks climbed, poised for a second week of gains, as a resurgence in U.S. job creation in June showed resilience in the economy of Canada's largest trading partner, offsetting a decline in the domestic payroll.

The S&P/TSX Composite Index rose 1 percent to 14,274.23 at 10:22 a.m. in Toronto. The benchmark is headed for its highest close in a month and a weekly increase of 1.5 percent after health-care shares led gains in the five days. Trading volume was 17 percent lower than the 30-day average.

Canada's job market weakened in June, capping the worst quarter for payrolls in two years. Employment fell by about 700 in June, short of economists' forecasts for a 5,000 gain, while the jobless rate unexpectedly dropped to 6.8 percent from 6.9 percent as Canadians left the job market.

Traders are now pricing in 20 percent odds Canada's central bank will cut interest rates in December, about half where the probability was on Thursday, according to data compiled by Bloomberg.

By contrast U.S. payrolls surged by 287,000 last month, topping the highest estimate in a Bloomberg survey and accelerating the most since October. The unemployment rate rose to 4.9 percent as more people entered the workforce. The U.S. is Canada's largest trading partner by a wide margin, accounting for more than $540 billion in trade last year, according to data compiled by Bloomberg.

“The weak details reinforce the view that Canada's job market is struggling to stay above the waterline,” said Douglas Porter, chief economist at Bank of Montreal, in a note to clients. “The consolation prize for the Bank of Canada was the nice, solid comeback in U.S. jobs last month, which suggests our biggest trading partner is still rolling along.”

Royal Bank of Canada and Bank of Nova Scotia each added 0.9 percent as financial services stocks contributed most to gains in the S&P/TSX. Energy producers increased 1.1 percent as a group as crude futures rose in New York to trim a weekly drop.

Mitel Networks Corp. soared 19 percent, the most since January, after acquisition target Polycom Inc. agreed to end its merger pact with Mitel in favor of a $2 billion offer from private equity firm Siris Capital Group. Mitel declined to match the offer.

Empire Co. added 1.6 percent after the parent of grocery chain Sobeys announced the departure of Chief Executive Officer Marc Poulin. Shares of Empire have sagged 25 percent this year, the worst among its peers in the S&P/TSX Consumer Staples Index.

Canadian equities have swung between gains and losses since the Brexit vote two weeks ago as investors sought havens from the market volatility. Raw-materials producers remain the top-performing industry in Canada this year with a 56 percent increase, the best such performance for the group in at least 30 years, according to data compiled by Bloomberg. Energy stocks have rallied 18 percent.

Amid the volatility Canadian stocks remain more expensive than their U.S. peers, with a price-earnings ratio of 21.9 for the S&P/TSX about 12 percent higher than the S&P 500.

To contact the reporter on this story: Eric Lam in Toronto at elam87@bloomberg.net. To contact the editors responsible for this story: Jeremy Herron at jherron8@bloomberg.net, Inyoung Hwang