Market Wire: US job creation surprises to the upside, lifting Fed tightening expectations

The US job creation engine accelerated in October, further reinforcing market expectations for another rate hike from the Federal Reserve at next month’s meeting. According to the Bureau of Labor Statistics, 165,000 roles were added in the month—representing a substantial overshoot relative to the 70,000-job consensus forecast—while the previous two months were revised up by a total 84,000 positions, bringing the three-month average pace of job creation up to 137,000, from 51,000 ahead of the update. The unemployment rate ticked down to 4.1% from 4.2% in September, and average hourly earnings climbed 0.4 percent month-over-month, speeding up from the 0.1% pace set in the prior month, rising 3.1% year-over-year.

The dollar is advancing and Treasury yields are climbing across the front end of the curve as traders upgrade expectations for the Fed’s policy path over the next year. Equity futures are pointing to gains at the open after yesterday’s sell-off — the worst since last year’s “Liberation Day” tariff announcement — wiped out more than $3tn in value. Many have blamed the move on a conclusive repudiation of the AI buildout – according to CNBC, voters approved 40 of 41 ballot measures opposing data centres in Tuesday’s midterm elections – but that fails to explain why investors waited two days to sell. A plumbing issue seems more plausible, with a breakdown in volatility-trading strategies, similar to 2018’s “Volmaggedon” episode looking – to us at least – to be the likeliest culprit.

North of the border, the Canadian economy unexpectedly shed jobs for a third month in October, adding to the case for a pause from the Bank of Canada. According to Statistics Canada, -4,700 positions were lost last month, compounding a -110,000-job decline in the prior two months and missing the 15,000-role consensus forecast. -18,100 full-time roles were lost against a 13,400 gain in part-time, while the unemployment rate ticked higher to 6.7% from 6.5% previously, and the average hourly wage for permanent employees – closely watched by monetary policymakers – rose 2.0% from a year earlier, down from 2.3% in the prior month.

Last night’s Canadian budget barely caused a ripple in markets after most measures were trailed in advance and surprises were kept to a minimum. Ottawa stuck to its fiscal anchors with federal debt stabilising at about 40% of gross domestic product, and ducked meaningful tax reform beyond the already-announced productivity “mega deduction” and a tweak to capital gains below C$15m. The government plans to spend an unexpected windfall – some C$23.9bn a year in additional revenue over five years – in its entirety, and to keep borrowing as it focuses on shielding households from the trade war while investing in projects designed to improve competitiveness. These goals are laudable, but if higher energy prices and rosier growth projections fail to materialise, the country could face mounting fiscal challenges.