NFP React: Complex NFP still confirms Nov taper announcement, Jobs Mission Accomplished in Canada

US stocks did not know how to react to a complex jobs report.  An adequate jobs report continues to pave the way for the Fed to make a formal taper announcement at the November 3^rd FOMC meeting.  Despite the expiration of pandemic unemployment insurance programs and the return to school and work for many in September, the labor market recovery is still being stymied by the delta variant.  Wage growth is still impressive, but that is not of primary concern as many of the lower paying jobs have still yet to come back.

This report further cements the Fed’s view that tapering does not start the countdown for interest rate hikes.  The dollar was initially sold after the weak payrolls report but has quickly erased most of its losses.  If next month’s report also has a similar slow pace of hiring, Wall Street might become more skeptical of any rate hikes happening at the end of next year.

Debt ceiling drama will also get a pass for a couple of months.  Next week, the House is now expected to allow the debt limit to increase by $480 billion, which gives the government the ability to pay its bills through December 3rd.

NFP

The initial reaction was disappointment as the headline miss of only 194,000 jobs created in September was the slowest pace this year.  Expectations for this NFP report were wide, with the consensus estimate of 500,000, a whisper number of 200,000, and some overly optimistic forecasts as high as 750,000 (yours truly included).  The report clearly shows that the delta variant impact is still hitting the Leisure and hospitality positions.  Many economists are scratching their head after 161,000 jobs in state and local education were erased.

The report did have some positives as the prior month had a steep upward revision from 235,000 to 366,000.  The Unemployment rate is now at 4.8%, which is getting close to the Fed’s longer run target of 4.0%.

CAD

The Canadian dollar is the best performing currency after Canada’s labor market report allows the BOC and government to say “Mission Accomplished” in bringing back all the jobs back to pre-pandemic levels.  With the 3-million jobs lost during COVID now back, rate hike expectations for the Bank of Canada will move towards early summer.

Canada posted 157,100 jobs increase in September, higher than the consensus estimate of 60,000 and the prior month’s gain of 90,200.  The participation rate improved to 65.5% and the unemployment rate remained steady at 6.9%.

The Canadian dollar is going to be a favorite currency trade if oil prices continue to rise and on a solid Canadian economic rebound.  USD/CAD is facing key support at 1.2480 and if that doesn’t hold, there isn’t much in the way until 1.21.

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