North American markets mixed on hot new U.S. employment data

Friday was a mixed day in North American markets. Investors tried to figure out what the U.S. Jobs report, which came back hot, meant about the economy overall and what it might mean for central banks looking to curb inflation.

The S&P/TSX composite index was up 43.09 points at 19,620.13, while in New York, the Dow Jones industrial average was up 76.65 points at 32,803.47. The S&P 500 index was down 6.75 points at 4,145.19, while the Nasdaq composite was down 63.02 points at 12,657.56.

Investors were mostly focused on the most recent monthly employment figures for Canada and the U.S., as there were not many other data releases or market-moving developments to take in this Friday.

The July report from the U.S. Labour Department in July was shocking south of the border. The country added 528,000 jobs during July, which was more than twice what 250,000 economists expected. This made July the most hot month for U.S. job growth since February.

The U.S. unemployment rate dropped by another percentage point, from 3.6% to 3.5%, matching the 50-year-old low just before the pandemic.

These numbers show that the U.S. economy is not slowing down. This makes it more likely that Federal Reserve will continue its monetary tightening program — likely with another interest-rate hike of up to three quarters of a percent in September. said Portfolio Managing Corp. managing director Anish Chopra

Chopra stated that investors had been anticipating that the Fed would pivot. This meant that the Federal Reserve would eventually stop raising interest rates but actually reduce them. said. “But it is unlikely that the U.S. Federal Reserve will soon reduce interest rates, considering the strength of the readings today.”

Canada had a more subdued job picture. Statistics Canada has actually shown that the Canadian job market is more positive. said Friday marked the second consecutive month in which Canada’s economy has lost 31,000 jobs in July.

However, Canada’s unemployment rate was stable at 4.9 % in July. This is the lowest level since 1976, when comparable records were started, Statistics Canada. said. Chopra said It is unlikely that the Bank of Canada will change its current rate hikes.

He said, “When you consider the strong background with the high oil price, the Canadian economy is still moving along… it’s probable that the Bank of Canada continues along its path of increasing interest rates.” said. “In spite of Canada losing jobs in the last few months, investors look to the fact Bank of Canada will likely maintain its rate-tightening track.”

In the wake of Friday’s jobs report, bond yields moved immediately higher. Chopra said Another important data release will be next Wednesday. The U.S. Consumer Price Index figures will provide an indication of inflation’s current level.

Investors are happy with the stronger-than-expected results for U.S.- and Canadian companies’ second quarter earnings seasons. However, inflation and central bank rate increases also pose a risk of the economy going into recession. This could impact shareholder returns and corporate profits.

Chopra said Investors will be closely watching the next weeks and months to see if any corporations issue warnings about third-quarter earnings — which could be a sign the economy is headed into dangerous territory.

“It can take time for rising interest rates to impact companies and economies,” he stated. said.

On Thursday, the Canadian dollar was traded at 77.32 US cents, compared to 77.80 US cents.

The September crude oil contract was up 47c at US$89.01 a barrel, and the September natural gaz contract was down sixc at US$8.06.

After a tough week for crude oil, there was a slight rise in oil prices. Due to the “demand destruction” that has been evident for months, the benchmark West Texas Intermediate price fell below $90 this week.

Canadian energy stocks felt the impact of the decline in oil prices, with the S&P/TSX capped energy index down 9.5 per cent from the start of the week.

The December gold contract fell US$15.70 to US$1,791.20 per ounce, while the September copper contract rose seven cents to US$3.55 per pound.

Files from The Associated Press

This report by The Canadian Press first appeared Aug. 5, 2022.