Traders will be focusing their attention this week on the Canadian and U.S. jobs reports for May scheduled for release on Friday.

In Canada, the data release schedule has a bit of a barbell appearance to it. First quarter GDP comes out on Monday, then the week is quiet until Friday brings the jobs report, and the Ivey Purchasing Managers Index.

“While some will cheer a 2% reading on GDP as better than expected a few weeks ago, the result will still be below the 2.5% pace that we had projected back in April, before abysmal data for January and February GDP were unveiled,” CIBC World Markets points out. “That said, the sharp bounce in March GDP does set the stage for a much healthier second quarter.”

BMO Nesbitt Burns says that the first quarter will likely prove to be the slowest for growth in 2004. “Consumers will provide ongoing support, but business investment will accelerate and top up the growth performance.”

The market impact of the GDP release is likely to be very high, RBC Capital Markets predicts. “As a rough guide, quarterly growth above 2.3% will likely be necessary to weigh on the front end of the bond market, while growth below 1.7% should provide support. Market reaction should also depend on the composition of Q1 growth (the higher the inventory contribution for a given growth rate, the better for bonds) and its profile (the higher the March figure, the worse for bonds).”

CIBC warns that the news might be less encouraging is in the labour market. “Canada still has a lot of workers with not a lot of output to show for them. While a single month¹s job gain can¹t really be forecast, there’s good reason to expect sub-par job growth on average over the balance of the year,” it says.”The monthly GDP and jobs numbers could cancel each other out in terms of impressions on monetary policy ahead.”

Nesbitt says the Canadian job market is expected to have churned out 20,000 jobs in May, down from 49,600 in April. “A key issue will be the split between full-time and part-time jobs. The pace of part-time job cuts has slowed, while further gains in the important full-time employment sector would help support future growth in domestic spending. The job gains will not be enough to affect the unemployment rate, which is slated to stay at 7.3%.” RBC says to expect a bond rally upon a job increase below 15,000, and a sell-off if it comes in above 35,000.

Stateside

In the U.S., returning from the Memorial Day long weekend on Tuesday, traders will get the ISM manufacturing report. On Thursday, factory orders, productivity and the ISM service industry report are out. The week closes with Friday’s jobs report.

RBC says that the ISM series are likely to continue to show strength, with a potential test of record highs in both. “While the factory purchasing managers data will be worth a look,” CIBC says. “The tone for the week (and perhaps for the month) will be set by Friday’s payrolls data.”

“Serial correlation in this series tends to mean that strong jobs numbers beget more strong numbers, and May shouldn’t prove an exception,” CIBC says. “But cooler heads should prevail this time, since both equities and bonds have adjusted to the prospect of firming labor markets and higher interest rates. It will take a reading well above 250,000 on payrolls, or a sharp jump in wages, to be a damper for financial markets.”

RBC is forecasting 230,000 new jobs. “A print above 200,000 would confirm to the market that the Fed needs to raise rates in June or risk getting behind the curve, although higher oil prices may yet see further patience,” it says, noting that a number bigger than 300,000 would be negative for bonds across the curve, while a reading of less than 160,000 would rally bonds.

RBC points out that the Fed is “likely to be weighing up the present pace of job growth against the remaining pool of unemployed labour and, crucially, the potential damage from a sustained period of high oil prices.” It says that “higher oil will drag on US growth if sustained and there is relatively little flow-back. For this reason the Fed may be looking beyond payrolls strength this week.”