US and Canada labour data comment
The data are mixed, and in some circumstances, I might have stayed with the long USD positions.
However, the USD has struggled all week and US bond yields have been falling. Despite stronger US data and the progress on tax reform.
I am somewhat surprised at the weaker USD and rates this week. I find it difficult to rationalize, and I can’t tell how long it will last. It may be partly due to the choice of Jay Powell as Fed chair. The market may see him has opening up risk to the Fed slowing its rate hike path and placing more emphasis on lower inflation outcomes.
As such, I am worried that the market will pick out the parts of the data that are weak.
The weakest part is the wages data, which is arguably the most important part of this data at the moment.
Wages rose 2.4%y/y, below 2.7% expected, and were revised down from 2.9% to 2.8% in Sep.
The unemployment data were stronger, down to 4.1%, below 4.2% expected, a new low since 2001.
The under-employment rate was 7.9%, down from 8.3%, equaling the low in 2006, and otherwise the low since 2001.
The headline payrolls growth data was 261K in Oct, below 313K expected, but if you add 90K in upward revisions to the two previous months, this could be seen as higher than expected.
In fact, I would tend to pay more attention to the tightening labour market, it should keep the Fed on a tightening path. But the market has been paying more attention to low inflation outcomes lately, so I prefer a square position at the moment.
The Canadian employment data were also mixed, but with higher wages. The jobs growth of 35.3K was higher than 15K expected, and this was led by stronger growth in full-time jobs for a second month, up 88.7K. However, the unemployment rate was weaker, rising from 6.2% to 6.3%, above 6.2% expected.
But perhaps more importantly for the CAD, the hourly wage rate rose 2.4%y/y, up from 2.2%y/y in Sep, a high since Apri-2016. This is around its long-run average. It may not be considered high, but it is moving in the right direction and should help support the case for another rate hike.
Canadian 2yr swap rates are up 2.2bp.
US 2yr swap rates are now roughly unchanged since the report, after an initial sharp dip, but up 0.8bp from the close yesterday. 10-year yields are also now largely unchanged since the data after an initial dip. They are flat on the day at 2.345%.