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Market Commentary – February 5, 2016

Feb 5, 2016

Good Morning.

It’s January payroll data day today.  Change in US Nonfarm Payrolls came in at +151k versus expectations of +190k.  In Canada, the Net Change in Employment was -5.7k versus expectations of +6.0k.  Not surprisingly, oil-centric Alberta was hid the hardest, losing 10k jobs in January.  Further weakness in Canadian employment is expected going forward as depressed resource prices continue to trickle across the broader economy.  Oil continues to slog along around $30.  Bond yields are actually up a couple basis points since the payroll data was released.  All quiet now.

Even before today’s employment data, economists and traders have been deviating from the Federal Reserve in forecasting how high interest rates will rise.  Analysts have cut their forecasts for the Fed’s peak policy rate at the end of this tightening cycle to a median of 2.875% from 3.375% in July.  The Fed’s latest forecast published in December was at 3.50% (down from 3.75%).  Weak economic growth, low inflation and global turmoil continue to weigh heavily on the Fed’s intentions to raise its overnight rate.

Implied probability of a hike by the Fed on March 16th is down to 12%.  Implied probability of a cut by the Bank of Canada on March 9th is 27%.

Overall, credit spreads continue their listless drift amidst growing investor malaise.  Of course, now that Tim Hortons has launched its annual Roll up the Rim promotion, market sentiment has improved measurably.  Jeremy Wedgbury, Senior Vice President of Commercial Mortgages at First National was quoted as saying “Hey…I just won a free donut!  This is going to be a great day!”

In international news, Australia’s economy posted a deficit of A$3.5 billion.  Australian Prime Minister Malcolm Turnbull was quoted as saying “No worries mate!”   I don’t predict that the Australian Trade Deficit will have any direct impact on your mortgage rates…at least not this week. 

G’Day,

Treasury Guy

Jason Ellis
Managing Director, Capital Markets