A Mixed Bag for the Job Market in the US and Canada

On September 6, 2024, the latest job numbers for the US and Canada sent mixed signals, leaving everyone wondering what might happen next. In the US, the non-farm payrolls for August showed that 142,000 new jobs were added. While this sounds like a lot, it fell short of the 160,000 jobs that were expected. Meanwhile, in Canada, the August employment change showed 22,100 new jobs, which was also lower than the expected 25,000.

So, what does all this mean for the markets and for us? Let’s break it down.

The Federal Reserve: To Cut or Not to Cut?

When these new job numbers came out, everyone turned to the Federal Reserve (the Fed), which is in charge of setting interest rates in the US. The big question on everyone’s mind was: “Will the Fed cut interest rates by 50 basis points (0.5%), or will it stick with a smaller cut?”

Fed members, like Christopher Waller, said that while the job market seems to be “softening” (not as strong as before), it is not “deteriorating” (not getting much worse). He suggested that they might start thinking about reducing rates, but he didn’t say by how much. This uncertainty left people guessing.

Meanwhile, another Fed member, Austan Goolsbee, pointed out that it’s important not to make things worse with quick decisions. He wants to be careful and wait for more data. Fed’s John Williams also noted that even though the unemployment rate has risen a little, it is still quite low. He thinks the current job numbers show that the economy is cooling down but isn’t ready to say how much the rate cuts should be.

Market Reactions: Gold, Oil, and Stocks Take a Hit

When the US job report first came out, it caused a lot of confusion. At first, it seemed like the Fed might go for a bigger rate cut of 50 basis points, and the US dollar dropped. Gold fell by $20 to $2,496, US 10-year yields went down to 3.72%, and 2-year yields to 3.65%. Oil prices also slid, with WTI crude oil dropping by $1.07 to $68.08 per barrel. The stock market wasn’t spared either, with the S&P 500 falling by 1.7%.

At first, this made many people think that a larger rate cut might be on the way. The euro rose from 1.1105 to 1.1154 against the dollar, and the British pound also climbed 60 pips to 1.3240. However, about an hour later, people took another look at the jobs report. They began to question whether the lower-than-expected job number and slight revisions were enough to justify a bigger rate cut.

Fed’s Waller and Williams Keep Everyone Guessing

The next big move came from Fed’s Christopher Waller, who talked about possibly “front-loading” rate cuts (cutting them early and significantly). At first, this made people think a big cut was coming. But then, he mentioned that the labor market is only softening and not getting worse. This caused the odds of a 50 basis point cut to drop to just 23%.

But the markets, always tricky, bounced back. Stocks fell again, and people rushed to buy safer bonds, pushing the odds of a 50 basis point cut back up to 31%. Timiraos, a journalist, suggested that a smaller cut of 25 basis points might be more likely, but his opinion didn’t settle the debate.

Wild Day for the USD/JPY and Canadian Concerns

The US dollar was particularly volatile against the Japanese yen (JPY) throughout the day. It ranged from 141.79 to 143.89, swinging up and down several times, finally ending about 50 pips from the lowest point. This shows just how uncertain the markets are right now. Many traders are keeping a close eye on Japan, especially after a tough week for the Nikkei stock index.

Canada had its own share of job market news. The unemployment rate in Canada ticked up to 6.6% from 6.4%, which is now two percentage points above its lowest point. This is a sign that the Canadian job market might be weakening more than people expected. The Bank of Canada (BOC) didn’t go for a 50 basis point rate cut this week, and this decision is making some people nervous. The BOC might be falling behind in responding to economic changes. The drop in Brent oil prices to the lowest level since 2021 also doesn’t help Canada’s currency, the loonie.

What’s Next? More Questions Than Answers

So, what do these mixed messages from the job reports mean for the future? Well, it’s still not clear whether the Fed will cut interest rates by 25 or 50 basis points. The job numbers showed some signs of a slowdown, but not enough to make a definite call. Meanwhile, the markets are reacting wildly to every bit of news, from job numbers to Fed speeches.

For now, the only thing certain is uncertainty itself. The Federal Reserve’s blackout period begins at midnight, meaning there will be no more public comments from Fed officials until the next decision. Until then, traders and economists will keep guessing and watching every data point closely.

In Summary: Expect the Unexpected

The week showed just how unpredictable the markets can be. Job numbers were lower than expected, the Fed was cautious but didn’t rule anything out, and markets were all over the place. Whether you’re into gold, oil, or stocks, it was a rollercoaster week. And the ride isn’t over yet. Stay tuned for more twists and turns in the financial markets!