Canada’s main stock index gained nearly 250 points on Friday as investors assessed stronger-than-expected employment data and its potential impact on future Bank of Canada policy decisions.
The Canadian labour market showed signs of recovery in July, with Statistics Canada reporting that the unemployment rate fell to 6.4% as the economy added 75,000 jobs. A Reuters poll had forecast a much smaller increase of 15,000 jobs.
Bank of Canada Expected to Hold Rates Steady
Despite the stronger employment figures, economists said there is still a long path ahead before the Bank of Canada considers raising interest rates.
“I would be hoping for interest rate cuts, but with strong jobs data and inflation slightly above target on the headline number, although the core is right at target, I think the Bank of Canada just stands … it doesn’t do anything,” said Allan Small, senior investment adviser at iA Private Wealth.
“I don’t think we’re going to see a raise; I don’t think we’re going to see a cut.”
According to LSEG Data & Analytics, financial markets were pricing in a 96% probability that the Bank of Canada will leave interest rates unchanged at its September 2 meeting.
Materials Sector Leads TSX Gains
The S&P/TSX Composite Index rose 244.92 points to 36,381.23, with the basic materials sector leading the advance as gold prices climbed.
The December gold contract increased by US$100.10 to US$4,399.70 per ounce.
Gold benefited from weaker-than-expected US employment data, which reduced expectations of further monetary tightening from the Federal Reserve.
The US government reported that employers unexpectedly cut 23,000 jobs last month. The report also included major downward revisions for May and June, reducing payroll figures by a combined 103,000 jobs.
“With today’s data showing weakness, with the odds of a rate increase now off the table or at least lower than 50 per cent, now everybody’s saying ‘Gold is back on,’” Small said.
US Markets Move Higher After Weak Jobs Report
US stocks advanced following the employment data.
- Dow Jones Industrial Average: up 151.83 points to 54,036.93
- S&P 500: up 47.68 points to 7,757.64
- Nasdaq Composite: up 342.26 points to 26,690.62
A weaker US labour market could complicate the Federal Reserve’s policy decisions as officials balance economic growth concerns with efforts to control inflation.
The Fed has kept interest rates unchanged amid concerns that inflation could remain elevated, partly due to higher oil prices linked to the US conflict with Iran.
Oil Prices and Canadian Dollar Rise
Oil prices moved higher on Friday as markets continued monitoring developments involving Iran and the United States.
“It’s one of those things where everybody’s waiting to see what’s going to happen, we’re hearing different things. Iran keeps saying something different than the U.S.,” Small said.
The September contract for West Texas Intermediate (WTI) crude rose 89 cents to US$78.18 per barrel.
The Canadian dollar traded at 71.72 US cents, compared with 71.34 US cents on Thursday.
