Investors appear to be reconsidering the risk that the U.S. economy could be about to tip into a recession, following Tuesday’s data which revealed the red-hot labor market is finally loosening up.
That data showed job openings fell to a 21-month low of 9.9 million in February, down from a revised 10.6 million for the prior month. Soon after those figures came out, alongside a report revealing factory orders declined a third time in the past four months, investors flocked to the safety of Treasurys — everything from 6-month T-bills TMUBMUSD06M,
4.719%
through 30-year bonds TMUBMUSD30Y,
3.606%
— and sent gold prices inching closer to record highs.
Tuesday’s data dented the appeal of stocks, with Dow industrials DJIA,
-0.59%
and the S&P 500 SPX,
-0.58%
snapping four straight sessions of gains to finish lower — along with the Nasdaq Composite COMP,
-0.52%.
The ICE U.S. Dollar Index DXY,
-0.04%
was off 0.5%. And traders now see a 98% chance that the Federal Reserve’s main interest rate target will fall by year-end from where it is now — between 4.75% and 5%; they think there’s a decent chance that policy makers will pause next month and in June before possibly cutting rates in July.
The tone in financial markets has shifted since March, when stocks managed to shake off concerns about the global banking sector and posted their largest monthly gains since January. That occurred as the 2-year Treasury yield experienced its biggest one-month plunge since January 2008, and the 10-year TMUBMUSD10Y,
3.357%
declined by the most in a month since March 2020.
On Tuesday, though, stocks fell in tandem with yields as traders priced in a scenario in which the Fed is essentially done with interest-rate hikes after May. Fed funds futures traders have clung to prospects of rate cuts by year-end since March, when troubles at Swiss banking giant Credit Suisse CS,
+1.11%
prompted them to factor in a full percentage point of easing from the Fed through December.
“Because we’ve really seen job openings remain elevated for quite some time, today’s data was significant,” said Edward Moya, a senior market analyst for the Americas at OANDA Corp. in New York. “It looks pretty clear that we are going to see parts of the economy break and we are heading for a recession. We forget that there’s also a banking crisis going on, so there’s going to be some pain that’s really going to cripple small and medium businesses. We are going to see some tough times and are probably going to see this play out in markets.”
Talk of a possible U.S. recession has gone on for about a year, without coming to fruition — helping stock investors focus on the brighter side of things and all three major indexes score year-to-date gains.
Just a day ago, a surprise oil-production cut announcement led by Saudi Arabia over the weekend put the prospects of $100-per-barrel oil prices back on the radar, and initially seemed bad for the Fed’s ongoing fight against inflation. As Monday’s trading wore on, investors regarded higher oil prices as beneficial for some U.S. companies, and used the OPEC+ announcement as an opportunity to drive Dow Industrials and the S&P 500 to a higher finish.
While Tuesday’s job-openings data generally supports the idea that a softer labor market could help ease wage pressures, investors appeared to be more focused on the signs it is sending about the prospects for economic growth, according to Moya. “We now seem comfortable living with $100-a-barrel oil and, right now, it’s pretty clear we are recession-bound. There were a lot of people thinking an oil spike would keep inflation jitters in place, but it seems like there’s too much weakness in the economy to do that.”
At bond giant PIMCO, economist Tiffany Wilding and Andrew Balls, chief investment officer of global fixed income, released a 6- to 12-month economic outlook for global markets and economies. In it, they said that recent volatility in the banking sector has raised the prospect of a significant tightening in credit conditions and, therefore, the risk of a “sooner and deeper recession.”
Meanwhile, Mark Haefele, CIO of UBS Global Wealth Management, said his firm is maintaining a cautious stance on growth stocks and that a “new bull market is unlikely on the horizon.” And at BMO Capital Markets, rates strategists Ian Lyngen and Ben Jeffery said “there is mounting evidence that the notion the U.S. economy is on strong enough footing to withstand materially higher interest rates may have been misplaced.”
“The JOLTS [Job Openings and Labor Turnover Survey] data showed job openings decelerating a lot more rapidly than initially anticipated, suggesting the number of openings per person has fallen quite sharply,” said Gennadiy Goldberg, a senior U.S. rates strategist at TD Securities in New York.
“It’s the first indication that firms are stopping their hiring sprees,” Goldberg said via phone. “The question for markets is, ‘Will this translate into weaker payroll growth in the coming months?’”
TD doesn’t see a growing risk of a recession since “the labor market is quite strong,” Goldberg said. The firm expects Friday’s nonfarm payroll report to show a gain of 270,000 jobs in March, above the 238,000 median forecast of economists polled by The Wall Street Journal.
“We are starting to see the first signs that the labor market is starting to react to tighter financial conditions,” Goldberg said. “But we can’t take away much from this about the next few payrolls or the depth of the next recession.”
OTTAWA – Statistics Canada says wholesale sales, excluding petroleum, petroleum products, and other hydrocarbons and excluding oilseed and grain, rose 0.4 per cent to $82.7 billion in July.
The increase came as sales in the miscellaneous subsector gained three per cent to reach $10.5 billion in July, helped by strength in the agriculture supplies industry group, which rose 9.2 per cent.
The food, beverage and tobacco subsector added 1.7 per cent to total $15 billion in July.
The personal and household goods subsector fell 2.5 per cent to $12.1 billion.
In volume terms, overall wholesale sales rose 0.5 per cent in July.
Statistics Canada started including oilseed and grain as well as the petroleum and petroleum products subsector as part of wholesale trade last year, but is excluding the data from monthly analysis until there is enough historical data.
This report by The Canadian Press was first published Sept. 13, 2024.
VICTORIA – British Columbia is forecasting a record budget deficit and a rising debt of almost $129 billion less than two weeks before the start of a provincial election campaign where economic stability and future progress are expected to be major issues.
Finance Minister Katrine Conroy, who has announced her retirement and will not seek re-election in the Oct. 19 vote, said Tuesday her final budget update as minister predicts a deficit of $8.9 billion, up $1.1 billion from a forecast she made earlier this year.
Conroy said she acknowledges “challenges” facing B.C., including three consecutive deficit budgets, but expected improved economic growth where the province will start to “turn a corner.”
The $8.9 billion deficit forecast for 2024-2025 is followed by annual deficit projections of $6.7 billion and $6.1 billion in 2026-2027, Conroy said at a news conference outlining the government’s first quarterly financial update.
Conroy said lower corporate income tax and natural resource revenues and the increased cost of fighting wildfires have had some of the largest impacts on the budget.
“I want to acknowledge the economic uncertainties,” she said. “While global inflation is showing signs of easing and we’ve seen cuts to the Bank of Canada interest rates, we know that the challenges are not over.”
Conroy said wildfire response costs are expected to total $886 million this year, more than $650 million higher than originally forecast.
Corporate income tax revenue is forecast to be $638 million lower as a result of federal government updates and natural resource revenues are down $299 million due to lower prices for natural gas, lumber and electricity, she said.
Debt-servicing costs are also forecast to be $344 million higher due to the larger debt balance, the current interest rate and accelerated borrowing to ensure services and capital projects are maintained through the province’s election period, said Conroy.
B.C.’s economic growth is expected to strengthen over the next three years, but the timing of a return to a balanced budget will fall to another minister, said Conroy, who was addressing what likely would be her last news conference as Minister of Finance.
The election is expected to be called on Sept. 21, with the vote set for Oct. 19.
“While we are a strong province, people are facing challenges,” she said. “We have never shied away from taking those challenges head on, because we want to keep British Columbians secure and help them build good lives now and for the long term. With the investments we’re making and the actions we’re taking to support people and build a stronger economy, we’ve started to turn a corner.”
Premier David Eby said before the fiscal forecast was released Tuesday that the New Democrat government remains committed to providing services and supports for people in British Columbia and cuts are not on his agenda.
Eby said people have been hurt by high interest costs and the province is facing budget pressures connected to low resource prices, high wildfire costs and struggling global economies.
The premier said that now is not the time to reduce supports and services for people.
Last month’s year-end report for the 2023-2024 budget saw the province post a budget deficit of $5.035 billion, down from the previous forecast of $5.9 billion.
Eby said he expects government financial priorities to become a major issue during the upcoming election, with the NDP pledging to continue to fund services and the B.C. Conservatives looking to make cuts.
This report by The Canadian Press was first published Sept. 10, 2024.
Note to readers: This is a corrected story. A previous version said the debt would be going up to more than $129 billion. In fact, it will be almost $129 billion.
NANAIMO, B.C. – Former Bank of Canada governor Mark Carney says he’ll be advising the Liberal party to flip some the challenges posed by an increasingly divided and dangerous world into an economic opportunity for Canada.
But he won’t say what his specific advice will be on economic issues that are politically divisive in Canada, like the carbon tax.
He presented his vision for the Liberals’ economic policy at the party’s caucus retreat in Nanaimo, B.C. today, after he agreed to help the party prepare for the next election as chair of a Liberal task force on economic growth.
Carney has been touted as a possible leadership contender to replace Justin Trudeau, who has said he has tried to coax Carney into politics for years.
Carney says if the prime minister asks him to do something he will do it to the best of his ability, but won’t elaborate on whether the new adviser role could lead to him adding his name to a ballot in the next election.
Finance Minister Chrystia Freeland says she has been taking advice from Carney for years, and that his new position won’t infringe on her role.
This report by The Canadian Press was first published Sept. 10, 2024.
