BOC: Scotia Now Sees 2025 Cuts Resuming After Jobs Data; RBC The Lone "Hold"-out
Sep-05 18:54
After today's very weak Labour Force Survey data for August, Scotiabank now expects a BOC cut in September, vs its previous view of a hold through the rest of the year.
- Writing that "Canada’s job market was hit hard in August", they think that the BOC will cut 25bp in each of September and October "and then hold. If they’re going to ease, then it’s totally pointless to do it just once." They note that the "seasonally unadjusted employment was very large—in fact it was the biggest on record back to 1976 when comparing like months of August", and that "jobs might have been weaker yet if not for SA factor effects".
- That said, after 50bp of cuts, "we'll see" whether further easing is merited. "Arguments for persistent cost pressures remain sound, such as supply chain turmoil, higher inventory holdings as a buffer, labour market wage and productivity pressures. Easing as an insurance play now could well motivate regrets later—and with that some take back."
- We did not see any other sell-side analyst calls change.
- The last holdout for "no cuts" among Canadian banks is RBC, which acknowledges that the data "increases the odds that the BoC could see fit to cut interest rates further". They are eyeing the September 16 CPI report as "another softer inflation print could raise odds for additional easing relative to our current base case that assumes the BoC has already reached the end of the cycle."
- BMO writes that they "are now looking for" a September cut, but this appeared to be their pre-existing call based on their rates forecasts from a month ago. They reiterate that they see 75bp of cuts through early 2026 though "t’s not a lock that the BoC will cut, as Canadian rates aren’t in restrictive terrain at 2.75%, and core inflation has proven sticky. But, the strong counter arguments are that the weaker job market will ultimately sap underlying price pressures, and rates are clearly not low enough yet to spur the housing market."
- Still seeing a cut in September after the jobs data: CIBC, Desjardins, National, TD only saw their conviction of a September cut increase. We didn't see any views suggesting that they were adding new rate cuts to their pre-existing paths.
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FED: Gov Cook Saw July Jobs Report As "Concerning", Possible "Turning Point"
Aug-06 18:39
Cumulative 2025 Fed rate cut pricing marginally extended to session highs (a little over 61bp, up 3bp on the day) as Fed Gov Cook notes that last week's Employment Report was "concerning" and could mark a "turning point":
- "We just received this jobs market report and this is concerning, you know, 35,000 jobs per month over the last three months ending in July. And there were major revisions to May and June. And these revisions are somewhat typical of turning points, which again, speak to uncertainty.... We want to know not just where we've been but where we're going. So if we're at an inflection point, we want to look at data, for example, that speak to inflection points. And it's not always payrolls - the unemployment rate is still a good indicator of slack in the system."
- Nothing here to suggest she wouldn't support a 25bp rate cut at the next meeting.
- We had guessed going into July's FOMC meeting that she was one of the 8 Committee members who were in line with the "median" rate cut projection of 50bp in the June Dot Plot.
USDJPY TECHS: Cracks Support
Aug-06 18:30
- RES 4: 152.31 High Feb 19
- RES 3: 151.62 61.8% retracement of the Jan 10 - Apr 22 bear leg
- RES 2: 151.21 High Mar 28
- RES 1: 150.92 High Aug 1
- PRICE: 147.26 @ 16:11 BST Aug 6
- SUP 1: 146.67 1.0% 10-dma envelope
- SUP 2: 146.62 Low Aug 5
- SUP 3: 146.60 50-day EMA
- SUP 4: 145.86 Low Jul 24
USDJPY reversed sharply from Friday’s intraday high and this is allowing a short-term overbought condition to unwind. While the pullback in prices Friday may have been corrective, the break and close below 147.57, the 20-day EMA, is a concern. A clear break of this support zone would undermine the recent bull theme. A break of last week’s 150.92 high would resume the uptrend.
US STOCKS: Late Equities Roundup: IT & Consumer Sector Shares Outperform
Aug-06 18:30
- Stocks remain firm late Wednesday, fully recovering from the prior session's sell-off, tech-heavy Nasdaq outperforming. Currently, the DJIA trades up 150.26 points (0.34%) at 44263.27, S&P E-Minis up 48.75 points (0.77%) at 6373.75, Nasdaq up 245.7 points (1.2%) at 21162.15.
- Stocks started to pare losses after White House officials said Apple will announce a commitment to invest another $100B on US manufacturing today. Speculation over whether Pres Trump will announce new Russia sanctions or nominees for Fed governor or BLS head, however, tethered risk appetites somewhat.
- A mix of IT, Consumer Staples and Discretionary sector shares continued to lead gainers in the second half: Arista Networks +17.91%, Assurant +11.94%, Match Group +10.17%, Apple +5.75%, Walmart +4.13%, Target +3.69%, Amazon +3.64%, McDonald's +3.42%, Tesla +3.34%, Kroger +2.94%, Ross Stores +2.85% and Costco Wholesale +2.82%.
- A couple notable IT exceptions bucking the move: Super Micro Computer -19.24% after earning outlook disappoints, while Advanced Micro Devices declined -5.81%.
- Leading decliners included Health Care, Materials and Energy sector shares: NRG Energy -14.01%, Mosaic -12.14%, Bio-Techne -10.34%, Charles River Laboratories -8.10%, Rockwell Automation -7.47%, International Flavors & Fragrances -6.54%, Paramount Global -6.17%, Enphase Energy -5.30%, Amgen -5.16% and LyondellBasell Industries -5.06%.
- Companies expected to announce earnings after today's close include: Corteva, McKesson Corp, Occidental Petroleum, AIG, DoorDash, Fortinet, AppLovin, Lyft, Dutch Bros, Airbnb Inc, Zillow Group, Duolingo, MetLife, APA and DraftKings Inc.
