Actual: 6.2%
Expected: 6.4%
Previous: 6.4%
How Did the Markets React?
Canadian markets were overjoyed by much stronger-than-expected labor reports today, as FX and equity markets rallied and fixed income prices dropped shortly after the release. The Canadian labor market added 50.5K additional jobs, bringing the unemployment rate down to 6.2% from 6.4% the month prior. Job growth was centered primarily in oil-rich Alberta, where energy companies boosted output and hired workers to meet demand. Canada has relied on job gains, rising housing prices and the oil boom to help maintain household spending and offset the impact of higher interest rates, a stronger domestic currency, and weaker demand from the US. Though the Bank of Canada is unlikely to act on monetary policy on December 5th, todays data reduced the probabilities that Governor Dodge and Co. would be force to cut rates on slowing growth.
Bonds Canadian 10-Year Bonds
Canadian fixed income markets opened just as todays labor market data was released, subsequently sending prices down from 99.800 down to the 99.550 level. While the run-up to US NFP data left prices on Canadian 10-year bonds to drift higher, the effect was short lived as prices soon dropped again to a low of 99.185 with yields up 8 basis points to 4.099%. Though the Bank of Canada is highly unlikely to act on monetary policy on December 5th, todays data reduced the probabilities that Governor Dodge would be force to cut rates on slowing growth in the near term as the unemployment rate dropped to 6.2% on the back of a 50.5K jump in job growth.
Canadian 10-Year Bonds (Intraday)
FX USD/CAD
Even strong US NFP data couldnt cloud the clearly correct reaction of the Loonie to improved labor market reports in Canada. USD/CAD sold off immediately to fall below the 1.1300 level when reports hit the tape that the economy added 50.5K additional jobs, bringing the unemployment rate down to 6.2% from 6.4% the month prior. Job growth was centered primarily in oil-rich Alberta, where energy companies boosted output and hired workers to meet demand. Canada has relied on job gains, rising housing prices and the oil boom to help maintain household spending and offset the impact of higher interest rates, a stronger domestic currency, and weaker demand from the US. Though the Bank of Canada is unlikely to act on monetary policy on December 5th, todays data reduced the probabilities that Governor Dodge and his associates would be forced to cut rates on slowing growth. Furthermore, with interest rates in Canada only 100 basis points lower than that of the US, there was little incentive for traders to use the USD/CAD pair amidst todays US data when more substantial carry could be made off of currencies like JPY and CHF.
USD/CAD (Intraday)
Equities S&P Toronto Stock Exchange Composite Index
A build up of buy orders sent shares in the S&P/TSX Composite Index skyrocketing 100 points higher at the opening of todays session to hit a high of 12,344.59. The combination of encouraging labor market reports and a resurgence in crude oil prices initiated the rally, but shares eased somewhat shortly after. Nevertheless, prices held above yesterdays close with the help of the energy sector, which makes up about a third of the S&P/TSX index, as it gained 2.4 percent. EnCana Corp. led the sector, gaining 1.9 percent to C$53.80.
What makes increases in crude oil even better for Canadian markets is that higher demand for oil spurs greater Canadian job growth. Todays labor report showed that the country has already seen this come to fruition as many of the October additions were out of oil-rich Alberta, helping to bring the number of workers up 50.5K and dragging the unemployment rate down to 6.2% from 6.4% in the month prior.
S&P/TSX Composite Index (Intraday Chart)
