U.S. non-farm payrolls for December were excpectionally strong

Posted: Friday, January 4, 2019 - 09:50 EST

U.S. non-farm payrolls for December were exceptionally strong adding 312k jobs, which was well above expectations of 184k.  Two month revisions were also positive adding an additional 58k.  The participation rate did tick higher by 0.2% to 63.1%, which led to the unemployment rate in the U.S. increasing by the same margin to 3.9%.  Unlike in Canada, wages in the U.S. continued to strengthen increasing by 0.1% from last month to 3.2% annualized.  The better jobs data reported this morning is providing rather positive tone.  European equity markets are now higher by over 1% with government yields in both Canada and the U.S. moving higher across the curve.  The U.S. dollar is also declining as investors are slowly unwinding their flight to quality positions.

Canadian employment for December came in right around consensus of 10k, adding 9.3k jobs.  With the participation rate holding steady at 65.4% from the prior month, the employment rate declined by 0.1% to 5.6%.  The details of the Canadian job report was less stellar, as the economy lost 18.9k full-time jobs which were replaced by 28.3k part-time jobs.  The strongest sector was manufacturing but was offset by job losses in trade and public administration.  Wage growth continues to be weak in Canada, declining by another 0.1% to 1.5% from last month.  After average hourly wages spiked in May of last year at 3.9%, wage growth has steadily declined. 

Yesterday afternoon, the Idaho Public Utilities Commission released its final ruling to deny Hydro One the ability to acquire Avista Corp.  Similar to the Washington regulator, Idaho noted that the intervention by the Province of Ontario displayed a lack of independence for the public utility.  The second denial to acquire Avista will further reduce the probability that the acquisition will move forward.  Similar to the prior days this week, volumes in the Canadian corporate credit market remained benign, although the negative sentiment yesterday kept most investors on the sidelines.  BMO decided to issue a Euro-covered bond yesterday, which could keep bail-in issuance on hold in Canada until the tone improves.  Spreads on the only issued bail-in debt by RBC have widened by almost 40bps from new issue.  With the weaker tone yesterday, credits spread ended the day marginally wider.

Equity Markets:

  Index Level % Change QTD YTD Q3 2017 Q4 2017 Q1 2018 Q2 2019 Q3 2019 Q4 2019
S&P 500 2,447.89 -2.48% -2.33% -2.33% 4.48% 6.64%

-0.76%

3.43% 7.71% -13.52%
TSX

14,212.75

-0.94%

-0.77%

-0.77%

3.68% 4.44%

-4.52%

6.77% -0.56% -10.11%

Rates:

 

Today

% Change

QTD change

YTD change

Q3 2017

Q4 2017

Q1 2018

Q2 2018

Q3 2018

Q4 2018

Canada 5 Year

1.81%

-0.03% -0.08% -0.08% 1.75% 1.87% 1.97% 2.07% 2.34% 1.89%
Canada 10 Year 1.89% -0.01% -0.08% -0.08% 2.10% 2.05% 2.09% 2.17% 2.43% 1.97%
Canada 30 Year 2.10% -0.02% -0.08% -0.08% 2.47% 2.27% 2.23% 2.21% 2.42% 2.18%
30yr Generic Corporate A rated Spread 1.50% 0.00% 0.00% 0.20% 1.24% 1.21% 1.24% 1.28% 1.30% 1.50%
30yr All-in Corporate A rated Yield

3.60%

-0.02% -0.08% 0.12% 3.71% 3.48% 3.47% 3.45% 3.72% 3.68%
US 10 Year 2.60% 0.05% -0.08% -0.08% 2.33% 2.41% 2.74% 2.86% 3.06% 2.69%
CDX IG 87.627 -2.544                

The information contained herein is intended for advisors for general information only and is compiled from sources believed to be reliable, but no representation or warranty, express or implied, is made as to its accuracy. All opinions contained in the commentary and expressed by the portfolio manager are subject to change without notice and are provided in good faith without legal responsibility. All market data is sourced from Bloomberg.