ON DECK FOR FRIDAY, NOVEMBER 7
KEY POINTS:
- Risk off sentiment continues
- Canadian jobs preview…
- ...and why it matters little to the BoC
- US UofM consumer sentiment and expected misery
Markets continue to play defence this morning. Stocks are gently lower across global benchmarks. Sovereign bonds also have a very slight cheapening bias. Gold is up by about $30/oz. The dollar is mixed but most crosses are little changed.
Overnight developments were very light including data wise with just a better than expected jump in German exports during September to consider (+1.4% m/m, 0.5% consensus, prior -0.8% revised from -0.5%). Canadian jobs and UMich will close out the week. The absurdity of the US government shutdown appears to be nowhere close to ending which adds to the risk that we might not even get key data in time for the December 10th FOMC meeting.
CANADIAN JOBS PREVIEW
Canada updates job market conditions with the Labour Force Survey for October this morning (8:30amET). Here’s a slightly adjusted version of what I wrote in my weekly.
Today’s figures are one of two sets of readings before the next Bank of Canada decision on December 10th which dampens some of its significance to markets. So does the fact that the BoC just set a very high bar against returning with further easing in its latest communications.
After a surprise 60k jobs were created in September it’s reasonable to expect some payback in the context of present macroeconomic uncertainties. Much of that gain was narrowly focused on Alberta but had otherwise solid details even if the gain in manufacturing jobs was kind of sus.
My guess is a loss of about 25k. Plus or minus a bazillion. The 95% confidence band around whatever number the survey spits out is about +/-57k. The unemployment rate may be stable through offsetting effects on the pool of labour.
Consensus is scattered all over the map between -25k and +25k and absent any clustering with a median of -5k. Most see the unemployment rate unchanged at 7.1% or a tick higher.
One added reason (other than coming off the prior large gain) is that October’s seasonal adjustment factor tends to shave unadjusted jobs and when combined with what is likely to be on the low end of seasonally unadjusted figures for like months of October the most probable outcome is a material drop in seasonally adjusted jobs. Chart 1 shows the scenarios for the change in jobs using different seasonally unadjusted changes and different SA factors. The odds favour a decline using this approach.
Further, surveys like the Ivey PMI and the CFIB’s small business hiring plans measure point toward downside risk to jobs over coming months.
If such expectations are anywhere close to reality, then they would restore a weak pattern for employment markets. Canada lost about 41k jobs in July, then another 66k in August before regaining 60k in September.
Hours worked may also be dented by the teacher’s strike in Alberta and Canada Post workers returning to work but at less than seasonally regular hours. That could add to tentative tracking of a -0.5% q/q SAAR drop in Q4 hours worked that is so far based solely on the way Q3 ended and handed off to Q4 from the Q3 average.
UMICH—MISERY IS ON THE RISE?
Watch UMich for both inflation expectations (chart 2) and expected unemployment over the next year (chart 3)—both of which have been high this year (10amET). In fact, expected unemployment is running at GFC levels and higher than the pandemic. I’ll take a deeper dive into the mixture of US labour market readings in my weekly in an effort to examine how much it is weakening.
Always treat these measures of expectations with high suspicion, but if the fears of US consumers are proven correct, then the rising misery index—that combines the unemployment rate with actual inflation—could easily return to a multi-year high from what is presently the highest since about mid-2024 (chart 4).
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