Morning Commentary: Homer Dome!

Foreign Exchange - Morning Commentary
Homer Dome!
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Alan Rose
Alan Rose
Foreign Exchange Senior Trader
The U.S. NFP jobs report was a home run today and comes against an overall backdrop of weaker global growth and a slowing U.S. economy. The U.S. created 266,000 jobs in November with the expectations of a gain of 180,000; this was a surprise to almost everyone in that it followed a very weak ADP private sector report on Wednesday. In addition to the outsized jobs gain, there were revisions to the two previous months adding another 41,000 jobs and the UR dropped again to a multi-decade low of 3.5% last seen in 1969.

The 266,000 jobs gain was the strongest report since January and comes as a surprise as the downstream effects of the trade war and a global slowdown have been impacting our economy. Manufacturing jobs rose sharply by 54,000 reflecting workers returning from the GM strike; average hourly earnings came in below expectations rising by 0.2% but the YoY rate rose from 3.0% to 3.1%. The labor force participation rate was a tick weaker from October coming in at 63.2%. All in all, a very strong report.

U.S. interest rates have jumped higher with 2-year and 10-year yields up by near 4 bps. The stronger than expected jobs report has propelled European stocks to the highs for the session and U.S. stocks are opening higher by near 0.80%. The U.S. dollar (DXY) is modestly stronger after falling for the previous five sessions. Overall, a very strong report but it is unlikely to move the needle for the Fed as job growth has been declining all year long and inflation remains benign; the FOMC meets next week and is widely expected to keep rates unchanged.
  • The outsized U.S. gain in job creation had no positive ripple effect for Canada. Canada’s job market unexpectedly weakened for a second-straight month posting the biggest drop in employment since 2009. The economy lost 71,000 jobs; expectations were for a small gain of 10,000. Both full-time and part-time jobs had near equal losses for the month. The UR jumped from 5.5% to 5.9% which is also the biggest one-month gain since 2009. Canadian interest rates are down on the session and the Canadian dollar has reversed near 60% of its gains from this week.
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