December Employment Data Summary
Today’s Canadian and US employment data indicates that both countries were close to full employment before the Omicron Surge.
USD
· 199k jobs created versus the consensus expectation of 450k, unemployment rate dips to 3.9% versus expected 4.1% and wages blew past expectations of a 0.4% increase, coming in at 0.6%
· Weaker than expected payrolls coupled with strong wage growth suggests that maximum employment has been reached (unless the participation rate moves higher)
· Both of the Federal Reserves goals of inflation above 2% and full employment have likely been met
· The case for a March rate hike grows stronger
Conclusion:
The data reinforces the concerns that the Fed is falling behind the curve, and that inflation will prove to be more of a problem than they think.
The path of least resistance for yields remains higher. We would not be surprised to see 10y yields breach 2% in Q1.
CAD
· A strong number with 122k full-time jobs created while 68k part-time jobs lost for a net of 55k jobs created versus expectations of 25k
· The unemployment rate drops to 5.9% (the pre-pandemic low was 5.7%)
· The numbers are strong enough to allow the Bank of Canada to use the January meeting to set the table for a rate hike in March or April
Conclusion:
Expect the Bank of Canada to start hiking rates in the spring. The market is pricing in roughly 4 hikes this year.
We expect yields across the curve to continue drifting higher.
