BOC: Analysts Remain Unanimous On BOC Oct Cut After Jobs Data, But Markets <50%
Oct-10 18:37
Analysts at Canadian institutions remain unanimous that the Bank of Canada will cut rates again by 25bp on October 29, despite a clearly stronger-than-expected labour market report for September - see post-LFS summaries below.
- That's not a view shared by rates markets that have gone from pricing in a close to 60% implied probability of a cut, to closer to 40% as we enter the weekend and a first full cut only by March (was January). The key deciding factors are lining up as the BOC's consumer and business outlook surveys on Oct 20 and CPI on Oct 21.
- Current BOC meeting-dated OIS implied cumulative rates (pre-LFS in brackets): Oct -11bp (-15bp), Dec -17bp (-22bp), Jan -22bp (-27bp), Mar -25bp (-30bp).
- CIBC: "The stronger-than-expected headline print and underlying details suggests that the Canadian labour market is stabilising following the weakening earlier in the year and over the early summer. However, the stillsluggish 3 and 6-month averages, combined with the elevated unemployment rate, suggests that the economy still isn't strong enough to reduce the amount of labour market slack already present. Because of that we continue to forecast a further interest rate cut from the Bank of Canada later this month, although upcoming CPI data remain important to that view."
- Desjardins: "Despite the job gains, labour market conditions show a mixed picture as the unemployment rate did not move in the month. Looking ahead, as indicated in our recent outlook External link., domestic demand appears to be holding steady despite the economic drag caused by trade uncertainty. The trade environment continues to improve, especially as retaliatory tariffs are removed, likely keeping inflation close to the Bank of Canada’s 2% target. This provides the Bank with much-needed wiggle room for further easing."
- National: "This report alone is not enough to convince us that the BoC will not cut rates in October. We should never overreact to a single piece of data, particularly when it originates from this survey. Ultimately, everything will depend on the information available before October 29. If inflation remains high and the Business Outlook Survey indicates an improvement in the Canadian business situation, we could see a pause later in the month, but we doubt this will happen."
- RBC: "It is highly unlikely that Bank of Canada policymakers thought in September that just one cut in the overnight rate would be enough to address economic weakness, and the labour force data today probably isn't positive enough alone to derail another cut in October. Still, the Bank of Canada will also have to take into account the next round of inflation data - and future cuts beyond October would be less likely if government deficit spending ramps up as expected to help address tariff related economic weakness."
- Scotiabank: "There are few—but meaningful—holes to poke in a very strong Canadian employment report that adds to evidence in favour of a hold by the Bank of Canada on October 29th. That’s more probable now, but not assured. We still need to see CPI on October 21st and the BoC’s quarterly surveys the day before, but at this point the odds of skipping the meeting have gone up. The economy is still weak and building spare capacity which could motivate the BoC to opt in favour of additional insurance. The BoC looks at job market trends that are still weak with employment down 46k in Q3 and there is a strong reason to be careful interpreting this round of jobs numbers."
- TD: " The sell-off in Canada rates strikes us as a bit of an overeaction given the inherent volatility in the data series. These are appealing entry points to own the front-end of the curve....Overall, today's report does help to shift the narrative around Canadian labour markets... but we do not think it will be enough to alter the near-term policy path. Canadian employment data is notoriously volatile, to the extent that we would not expect the Bank to put much weigh on one single month, and 3m/6m trends would suggest that labour market slack has continued to build."
Want to read more?
Find more articles and bullets on these widgets:
Historical bullets
US STOCKS: Late Equities Roundup: S&Ps, Nasdaq Paring Early Session Gains
Sep-10 18:35
- Stocks remain mixed late Wednesday, the weaker DJIA (after rising to new record high of 45,711.34 Tuesday) dragging the S&P eminis and Nasdaq indexes off early session highs. Currently, the DJIA trades down 237.69 points (-0.52%) at 45474.62, S&P E-Minis up 10 points (0.15%) at 6532, Nasdaq down 10.8 points (0%) at 21866.97.
- Information Technology and Utility/Energy sector shares continued to outperform in the second half, the tech sector led by software maker Oracle - rallying a whopping 38% after announcing it had secured "several billion-dollar contracts in it's latest quarter" the WSJ reported.
- Chip makers continued to underpin the tech sector: Broadcom +8.36%, Arista Networks +6.46%, NVIDIA +3.95% and Micron Technology +3.87%.
- Utility/Energy sector shares held gains as oil prices rebound (WTI +1.13 at 63.76): Vistra Corp +8.07%, Constellation Energy +7.80%, NRG Energy +5.22%, PG&E Corp +3.14%, APA Corp +5.42%, Baker Hughes +3.29% and Halliburton +3.22%.
- Conversely, Consumer Discretionary and Health Care sectors revered prior session gains, the former weighed by Amazon.com -3.02%, CarMax -2.70%, McDonald's -2.49%, Chipotle Mexican Grill -2.17%.
- Meanwhile, equipment and services shares weighed on the Health Care sector: Bio-Techne -4.82%, HCA Healthcare -4.38%, Insulet -4.22% and ResMed -3.52%.
COMMODITIES: Crude Extends Gains, Gold Rises As Geopolitical Tensions Escalate
Sep-10 18:35
- Crude prices have extended gains amid the escalation in geopolitical tensions following the shooting down of Russian drones over Poland.
- WTI spiked to an intraday high $64.08/b, before paring some of the move, after Trump sent a cryptic Truth Social post in response to the Russian drone incursion. Initial strength during the day was driven by earlier geopolitical tensions and risks of further sanctions/secondary tariffs on Russia, despite a large US crude inventory build.
- WTI OCT 25 is currently up by 1.7% at $63.7/bbl.
- Despite recent gains, the trend condition in WTI futures remains bearish. Initial resistance to watch is $66.03, the Sep 2 high. A stronger resumption of weakness would pave the way for a move towards $57.71, the May 30 low.
- Elsewhere, spot gold has risen by 0.6% to $3,648/oz, keeping the yellow metal close to yesterday’s all-time high at $3,674.3.
- Bullion has rallied ~10% since Aug 22 amid widespread expectations that the Fed will cut rates next week.
- Analysts at ANZ bank have raised their year-end gold forecast to $3,800 as they say rising risks to the labour market will likely prompt the Fed to maintain its easing stance through to March 2026.
- Gold remains in a clear bull cycle and last week’s gains plus this week’s bullish start reinforce current conditions. The next objective is $3,674.8, a Fibonacci projection, followed by $3,700 round number resistance.
US PREVIEW: August CPI: Soft Print Raises Risks Of 50bp Cut (Or Dissents) (4/4)
Sep-10 18:34
A 25bp Fed rate cut at the September FOMC meeting looks assured regardless of what transpires in the August inflation data, given the increasing focus on downside labor market risks reinforced by this week’s QCEW revisions and PPI data, and another soft payrolls report for August last week.
- However the data has a chance to shape both the tone of the communications as well as the new set of quarterly forecasts due to be released at the meeting.
- Unexpected developments in tariff-sensitive core goods as well as in broader services will be in focus. Just before the pre-meeting blackout period, yet after nonfarm payrolls, Chicago Fed President Goolsbee (a 2025 FOMC voter) said that “The more mild numbers we get on inflation, the better I’ll feel about just focusing on the labor market… But in the last inflation reports, we also had this uptick in inflation coming from services, so I think we want to make sure that that’s more of a blip and not a more ominous indicator.”
- Goolsbee’s caution in the face of weaker jobs data suggests potential for broader caution on the FOMC should we see another solid set of prints this week, with other voters including Schmid and Musalem sounding very much unconvinced that significant easing is required at this juncture. That could tilt the balance away from the Dot Plot pointing to any more than the existing 2 cuts for the median voter by year-end, for instance.
- An unambiguously soft set of data, including a lack of major tariff passthrough to goods and limited bleeding through into services, could see FOMC participants more amenable to 3x cuts the rest of the year (the median is likely to be either 2 or 3 vs the current 2).
- Wednesday's pullback in PPI with downward revisions raises risks of support for a 50bp cut, and if CPI is very weak we would not be surprised to at see three dissenters in that column (Waller, Bowman, Miran).
- Otherwise, we would guess the FOMC median participant would be a little more cautious about near-term easing absent more conclusive evidence broad inflation pressures aren’t meaningfully bubbling up.
- It could also restrain Chair Powell’s conviction at the press conference on the need to reduce policy restriction in order to stave off apparent rising downside risks to the employment mandate.
