Market Wire - North American Jobs Reports Keep Monetary Policy Expectations Unchanged

Karl Schamotta, Chief Market Strategist: karl.schamotta@corpay.com

428,000 jobs were created in the United States last month and labour market conditions continued to tighten, sustaining market expectations for at least three half-point Federal Reserve rate hikes in the coming months. According to data released by the Bureau of Labor Statistics this morning, the unemployment rate was unchanged at 3.6 percent in April, and the participation rate moved lower to 62.2 from 62.4 percent in the prior month. 

Revisions subtracted 39,000 job gains from the prior two months. The year-over-year gain in average hourly earnings held at 5.5 percent. 

Investors were positioned for a 390,000-job gain, with the unemployment rate seen hitting 3.5 percent, and earnings up 5.5 percent. 

The data was collected in mid-April, well after the Russian invasion of Ukraine raised energy prices, tightened global financial conditions, and dampened economic sentiment levels.

Treasury yields are up again, with the ten-year holding above 3.07 percent as markets recover from an extraordinarily violent two-day round trip. The dollar is up almost 1 percent from lows reached after Jerome Powell downplayed the likelihood of 75-basis point rate hikes during Wednesday’s press conference - but is flat on the week. Equity futures are pointing to a slightly weaker open, and with a total of six Federal Reserve officials slated to speak over the course of the day, volatility is unlikely to subside. 

Also this morning, Statistics Canada reported another drop in Canadian unemployment. 15,300 positions were added in April, driving the unemployment rate down to 5.2 percent from 5.3 percent in the prior month - again marking the lowest since the agency began collecting similar records in 1976. Economists had expected a 55,000-job gain, with unemployment falling to 5.2 percent. 

Average hourly wages grew 3.4 percent on a year-over-year basis, down from the 3.7 percent pace recorded in March, and well below levels that would be required to keep pace with inflation. 

West Texas Intermediate prices are back above $110 a barrel, and markets expect the Bank of Canada to hike rates by another 50 basis points when it meets again on June 1, but the Canadian dollar continues to trade defensively - something that suggests investors remain wary of household and corporate vulnerabilities as interest rates climb.