Weak U.S. jobs report cools Fed hike bets and lifts the TSX 1%

A much softer-than-expected U.S. jobs report on Friday eased fears of another imminent interest-rate increase from the Federal Reserve, sending stocks higher on both sides of the border. The U.S. Bureau of Labor Statistics said employers added only 29,000 jobs in September, and the unemployment rate rose to 4.2%.

In Toronto, the S&P/TSX Composite Index rose 347.89 points, or about 1%, to 35,502.65, ending a four-day slide. It still finished the week down 1.3%.

The numbers vs. expectations

Probabilities from CME FedWatch of the Fed holding rates at its late-October meeting rose to roughly 80% to 85% during the day, according to Fox Business and Investing.com. A week earlier, FedWatch had shown only about a 36% chance of a hold.

• U.S. nonfarm payrolls, September: +29,000, against forecasts of roughly 84,000 to 90,000 depending on the survey
• Unemployment rate: 4.2%, versus 4.1% expected
• Revisions: July and August combined were cut by 60,000; July now shows a loss of 10,000 jobs
• Average hourly earnings: +3.0% from a year earlier, below the 3.2% expected
• Private-sector payrolls: +46,000; government: -17,000

How Canadian markets reacted

Eight of 12 TSX subgroups gained, according to Baystreet.ca. Industrials rose 1.8%, information technology 1.7% and materials 1.6%. Aecon Group gained 5.4% and Ero Copper 6.4%. Health care (-1.3%), consumer staples and real estate lagged.

The loonie eased 0.15 cents to 70.17 U.S. cents. Oil fell US$1.43 to US$91.44 a barrel and gold dropped US$29.50 to US$4,172.80 an ounce. On Wall Street, the Nasdaq rose 1.2% and Nvidia hit its first record high since May.

The Canadian angle

The Fed's target range is 3.75% to 4%, after a hike in September, while the Bank of Canada has held its policy rate at 2.25%. That gap is one reason the Canadian dollar has hovered near 70 U.S. cents. Any sign the Fed is done tightening eases pressure on Canadian bond yields, which feed directly into fixed mortgage rates. The Bank of Canada decides next on Oct. 28, after Statistics Canada's September jobs report; Canada lost 42,000 jobs in August.

Why this may not last

Bond markets were less convinced than stocks. Treasury yields initially fell on the report but turned higher during the session, and the 10-year yield ended near 5.28% to 5.29%. Several Fed officials remain hawkish: Dallas Fed President Lorie Logan has said rates must rise at least another 50 basis points, and Minneapolis Fed President Neel Kashkari expects more hikes into 2027. FedWatch still showed about a 66% chance of a hike in December, Fox Business reported. Vanguard economist Adam Schickling described a “low-hire, low-fire” labour market that is resilient but not accelerating.

What it means for you

One soft report does not reset the rate outlook. Long-term bond yields, which drive five-year fixed mortgage rates, stayed near multi-decade highs even as stocks rallied. If you face a mortgage renewal in the coming months, compare fixed and variable offers carefully and avoid assuming rates will fall quickly. For investors, a single day's swing on economic data is rarely a reason to change a long-term plan. This article is general information, not personal financial advice.

Related

• Fixed vs. variable mortgage
• Mortgage renewal guide

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