Catch 22 For The Fed (Again)
Big employment gains in July south of the border, upward revisions to June's data and wage growth more than expected.
Unemployment remained at 4.9%.
Remember that we are watching for the convergence of these 2 numbers as one of our indicators of the potential for a US recession. With better than expected employment data, many market participants are quite enamoured with equity markets, driving them higher on this news. We are somewhat more reluctant to rejoice, however.
Based on Fed Funds Futures, the expectation of a US Federal Reserve interest rate increase at their September 21 meeting has jumped to 18% from 9%.
If the fed raises interest rates and flattens the yield curve (as they did in 2007), that too will be a bond market signal for increased recession potential.
Meanwhile, north of the border, The Labour Force Survey showed that Canada lost 31,000 jobs in July (mostly in Ontario) and the unemployment rate increased to 6.9%. This puts the Bank Of Canada in a difficult position.
The Canadian $ dropped on this news:
There may be more pressure on the BOC to lower interest rates. Diverging monetary policies (in this direction) will favour the $US.
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