Market update

In September, Canada's merchandise exports rose by 1.3%, while imports increased by 0.4% leading to a trade surplus widening from $550 million in August to $1.1 billion in September.

Canada’s employment market unexpectedly added 108,300 jobs (+0.6%) in October and the unemployment rate held steady at 5.2%.

Canadian manufacturing activity slipped for a third straight month in October as production and new orders fell, while output prices rose with pressure on the Canadian dollar.

U.S. Federal Reserve raised interest rates by 75 basis points and reiterated their support for further hikes ahead.

The U.S. trade deficit widened 11.6% in September above expectations. Imports increased by 1.5% and exports fell 1.1% during September.

The U.S. economy added 261,000 jobs in October, beating forecasts of 200,000 while the U.S. unemployment rate rose to 3.7% in October versus 3.5% in September.

Job openings in the U.S. rose to 10.7 million in September in a sign that the labor market hasn’t fallen as much as the U.S. Federal Reserve would like.

U.S. manufacturing activity grew at its slowest pace in nearly 2-1/2 years in October with The Institute for Supply Management (ISM) reporting that its manufacturing PMI fell to 50.2 last month from 50.9 in September, both the lowest readings since May 2020.

The number of Americans filing new claims for unemployment benefits unexpectedly fell last week, suggesting the labor market remains strong. Weekly jobless claims fell 1,000 to 217,000 while continued claims increased by 47,000 to 1.485 million.

England raised its benchmark interest rate by three-quarters of a percentage to 3%. Oil prices retreated as global recession fears outweighed supply concerns.

Eurozone flash October CPI comes in higher than expected at +1.5% for the month and +10.7% annually. 

Euro-area manufacturing activity sank to the lowest level since the first Covid-19 lockdowns in 2020 as record inflation and a weakening global economy wear away demand for goods.

China has ordered a seven-day lockdown of `iPhone City’ around the main plant operated by Foxconn, as Foxconn grappled with a Covid flare-up. Rumors have made it apparent that authorities are trying harder to ease the impact of its COVID-Zero policy. Meanwhile, China daily Covid infections rose to the highest since early May.

Ships brought grain from Ukrainian ports on Monday, suggesting Moscow had stopped short of reimposing a blockade that might have caused world hunger, despite suspending its participation in a U.N. programme to safely export grain from the war zone.

Supporters took to the streets of Sao Paulo on Sunday night to celebrate a stunning comeback for Lula beating out current president Jair Bolsonaro. Having served two terms from 2003 – 2010, his electoral win follows a spell in prison for corruption convictions that were later annulled.

Weekly change: TSX: 3.2%; DOW: 5.7%; S&P 500: 3.9%; NASDAQ: 2.22%; GOLD: -0.6%; WTI: 3.7%

 

Bloomberg Market Updates - https://www.bnnbloomberg.ca/markets

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CIBC Economics Quick Take: FOMC Announcement by Katherine Judge

The FOMC hiked interest rates by a further 75bps as expected, taking the fed funds rate range to 3.75-4.00%. Policymakers continued to state that further increases were appropriate, but added that those are to attain a stance that's sufficiently restrictive. In determining the future pace of hikes, policymakers will take into account the lags with which previous hikes are impacting activity. Those two remarks taken together will give officials a platform to stop hiking rates while inflation is still high, and as a result, yields have fallen. However, today's statement is still consistent with the median dot plot projections released back in September which showed rates reaching 4.25-4.50% by year end (i.e. a further 50bp hike in December), and between 4.50-4.75% next year. Our own forecast doesn’t include that final 25bp hike in 2023, as we expect to see evidence that GDP and employment growth is slowing more than the Fed previously anticipated by then.

 

CIBC Economics Quick Takes: Canadian employment (Oct)  US Non-farm payrolls (Oct) 

Canadian employment (Oct) by Andrew Grantham

The Canadian labour market came out of its summer lull in spectacular fashion in October, with an unexpected surge in employment and wage growth. The 108K jump in jobs was well above the 10K consensus forecast, and was enough to offset the declines seen over the summer to take the level of employment above May's previous peak. All of the jobs were in full time positions, and were led by manufacturing, construction and accommodation & food service sectors. Despite the surge in jobs, a rebound in labour force participation meant that the unemployment rate held steady at 5.2%, although wage growth accelerated to 5.5%, from 5.2% in the prior month and against expectations for a slight deceleration. However, while today's figure was much stronger than expected, the volatility of this survey and declines seen over the summer means that the 6-month average for employment gains is still only 9K, which is slightly below the pace of labour force growth. Coupled with the fact that there is one more employment report before the Bank of Canada's next meeting, today's data shouldn't change the narrative that we are closer to the end of the current rate hiking cycle than the beginning although it does support the call for a 50bp hike rather than 25bp in December. 

US Non-farm payrolls (Oct) by Katherine Judge

The Fed is looking for signs of a cooling in the labor market, and the October data didn't deliver much on that front. The 261K jobs gained were well above the consensus expectation of 193K, and a +29K revision to the prior two-month job tally added to the upside. Hiring was somewhat widespread across industries, with health care, professional services, and manufacturing seeing notable gains. Wage growth accelerated to 0.4% m/m (vs. 0.3% m/m consensus), and while a 328K drop in employment on the household survey sent the unemployment rate up two ticks to 3.7% (vs. 3.6% expected), that still leaves it at a level last seen in August. Today's data still justifies another outsized rate hike at the December FOMC, unless the November data were to show a marked deterioration in labor market conditions.

 

FEDERAL BUDGET BRIEFS by Andrew Grantham & Katherine Judge Link to Article

Today’s fiscal update saw a notable reduction in the deficit projection for the current fiscal year and, even with some less favourable economic projections from here and modest spending increases, the updated longer-term projections now show a slim surplus being achieved by fiscal 2027/28.

The debt-to-GDP ratio is expected to fall to this year from last year, and move steadily toward pre-pandemic levels by the end of the forecast horizon.

Revenues are expected to be ahead of those prior projections, largely due to higher income tax receipts. The upward revision to revenue projections more than offset somewhat higher spending, including increased public debt charges linked to the rapid rise in interest rates seen so far this year.

Efforts to help Canadians with the cost of living, including a doubling of the GST tax credit for 6 months and top up to the Canada Housing Benefit were announced for the first time back in September.

Additional initiatives announced today, including measures related to boosting business investment and making all student and apprentice loans permanently interest free represent spending increases in fiscal 2023/24 and beyond rather than the current fiscal year.

Due to the improved budget projections for the current fiscal year, combined with a smaller deficit last year that had previously been borrowed for, bond issuance is expected to be a modestly lower $191bn in the current fiscal year. That's a reduction of $21bn relative to the Budget 2022 projections, with issuance in most areas expected to be lower.

 

 

Global Insights

Russia said on Wednesday it would resume its participation in a deal freeing up grain exports from war-torn Ukraine, reversing a move that world leaders had said threatened to exacerbate global hunger.

Moscow announced the sudden reversal after Turkey and the United Nations helped keep Ukrainian grain flowing for several days without a Russian role in inspections.

Reuters

The federal government announced plans to introduce a share buyback tax in its Fall Economic Statement.

The tax will come in effect on Jan. 1, 2024 and more details will be announced in the 2023 budget. It is expected that the new share buyback tax will generate $2.1 billion in revenue to the government’s coffers over the next five fiscal years. It will also encourage corporations “to reinvest their profits in their workers and business,” the government said, without adding further details.

Bloomberg

The Real Estate Board of Greater Vancouver says home sales continued to plunge in October, falling 45.5 per cent from the year before and 12.8 per cent from September. Last month sales totalled 1,903 and were 33.3 per cent below the 10-year October sales average.

Bloomberg

China will make substantial changes to its "dynamic-zero" COVID-19 policy in coming months, a former Chinese disease control official told a conference hosted by Citi on Friday, according to a recording of the session heard by Reuters.

Reuters

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