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US economy adds 916000 jobs in March as recovery hopes grow – Financial Times

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The US economy added 916,000 jobs in March and the unemployment rate edged down to 6 per cent in a sign that the recovery was accelerating in the month that Joe Biden signed his $1.9tn stimulus into law.

The non-farm payrolls data released on Friday exceeded economists’ expectations and marked a sharp improvement from the upwardly revised 468,000 jobs created in February and 233,000 positions created in January.

The improvement in the labour market has occurred amid optimism over America’s fight against the pandemic, as a winter surge in infections has ebbed and the rate of vaccinations picked up sharply.

In the past few weeks, Covid-19 cases have started to increase again but the pace of inoculation has continued to rise, raising hope of further improvement in coming months.

The March job gains were not only larger than in previous months, but more broadly based. Hiring in the leisure and hospitality sector, which has been especially sensitive to the ups and downs of the pandemic but drove last month’s job gains, slowed from a pace of 384,000 to 280,000.

Column chart of Change in total US non-farm payrolls (m) showing US job growth accelerates in March

But goods-producing employment, including manufacturing and construction, bounced back sharply, from job losses of 44,000 in February to a gain of 183,000 positions last month. Government hiring surged to 136,000 after shedding 90,000 jobs in February.

The report weighed on the prices of short-term government bonds, with some traders positioning for the prospect that a faster economic rebound could prompt the US central bank to tighten policy faster than previously thought. The yield on the two-year note, which has been anchored near zero, rose 0.03 percentage points to 0.19 per cent. It was one of the largest one-day increases in the yield on the note over the past year.

Future interest rates implied from Fed funds futures and eurodollars also climbed on Friday, underlining the shifts by investors.

“It seems to be the recovery [is] happening much more quickly than people thought could possibly move the Fed into a position where they may have to do something sooner rather than later,” Tom di Galoma, a managing director with Seaport Global Holdings, said. “The front-end is starting to price in a tightening.”

Line chart of Yield on two-year US Treasury (%) showing Short-term Treasury yields climb as investors debate Fed reaction

The economic recovery in recent months had predominantly hit long-term US Treasury debt, lifting yields on the 10-year note to more than 1.7 per cent. But Federal Reserve officials have not expressed any alarm over rising borrowing costs or even the likely surge in inflation this year, saying it is likely to be transient.

Long-dated US government bonds, which recently notched the worst quarterly performance since 1980, slid after the data was released.

The benchmark 10-year Treasury yield climbed 0.05 percentage points to 1.72 per cent in morning trading in New York, not far from the 14-month peak of 1.78 per cent reached earlier this week. 

Five and seven-year Treasuries were also under pressure. The yield on the five-year note rose just under 0.08 percentage points to 0.98 per cent, while the 7-year traded 0.06 percentage points higher to 1.42 per cent.

Major stock markets globally, including US exchanges, are closed for the Easter weekend. Speaking before heading to Camp David for the holiday on Friday, Biden said the US still had “a long way to go to get our economy back on track” but the improvement was evident.

“My message to the America people is this: Help is here. Opportunity is coming”.

The strength of the jobs report was amplified by the decline of the unemployment rate from 6.2 per cent to 6 per cent, as more Americans found jobs and more looked for jobs, with the US labour force expanding by 347,000 people.

Line chart of Underemployment is still above 10%, underscoring the stress on households showing US unemployment has fallen sharply from postwar high hit in 2020

“The [rebound] still leaves employment 8.4m below its pre-pandemic peak from just over a year ago but, with the vaccination programme likely to reach critical mass within the next couple of months and the next round of fiscal stimulus providing a big boost, there is finally real light at the end of the tunnel,” said Paul Ashworth, chief US economist at Capital Economics.

Brian Levitt, global market strategist at Invesco, said the report was “confirmation of what we all were starting to pick up on some months ago, which was that the economy is accelerating and the vaccine rollout is a game changer”.

“You add on top of that the fiscal support [with] a lot of money set to be deployed . . . and as a result you are seeing businesses hire to address current demand and get in front of future demand.”

The recovery seen in the labour market has not erased the scarring caused by the pandemic, and investors expect the US central bank and the White House to continue to stimulate the economy given millions of Americans remain out of work.

“Today’s report confirms that labour market conditions are decidedly improving but reaching broad-based and inclusive full employment will be a multiyear process. As such, we expect the Fed to keep rates steady until mid 2023,” said Nancy Vanden Houten, lead US economist at Oxford Economics.

“People will focus on the fall in the unemployment rate but that number is not that relevant in terms of what the Fed is looking for,” added Gershon Distenfeld, the co-head of fixed income at AllianceBernstein. “What really matters is what does the economy look like when we open up? How much of the supply side has been damaged?”

Line chart of Change in US employment from 2000 (millions of people) showing Millions of Americans are still out of work

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Bank of Canada signals rate hike in 2022, tapers bond purchases

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By Julie Gordon and David Ljunggren

OTTAWA (Reuters) -The Bank of Canada signaled on Wednesday that it could start hiking interest rates in late 2022, as it sharply boosted its outlook for the Canadian economy and reduced the scope of its bond buying program.

The central bank said it now expects economic slack to be absorbed in the second half of 2022, from a previous forecast of into 2023. It held its key overnight rate steady at 0.25%.

Governor Tiff Macklem, speaking to reporters after the decision, made clear that while the bank is committed to refrain from raising rates until the economy is running at full capacity, there is no guarantee borrowing costs will rise when those conditions are met.

“What we do when those conditions are met, we’ll have to assess that at the time. There’s nothing mechanical,” he said, adding: “We’re looking for a full recovery, we’re not going to count our chickens before they’re hatched.”

The Bank also said it now believes the COVID-19 pandemic will be “less detrimental” than previously assessed to the economy’s potential output.

Canada‘s annual inflation rate doubled to 2.2% in March, Statistics Canada said separately, in part due to a statistical effect caused by a sharp deceleration last year during the coronavirus pandemic.

The Bank of Canada targets the midpoint of an control range of 1% to 3%. It expects inflation to temporarily rise to about 3% this year, before falling to around 2% in the second half. It will then fall further in early 2022 before recovering.

Canada‘s economy is expected to grow 6.5% in 2021, up from a forecast of 4.0% in January, the central bank said in its spring Monetary Policy Report, also released Wednesday.

It sees economic growth in the United States, which is Canada‘s largest trading partner, at 7.0% this year, up from 5.0%.

Much of the growth comes down to a massive U.S. stimulus plan passed in March and Canada‘s own stimulus package, unveiled Monday as part of Prime Minister Justin Trudeau’s government‘s first budget in more than two years.

“Our projection at a macro level really captures the fiscal stimulus that has been announced both by provincial governments and to a large degree the federal government,” said Macklem.

BOND TAPERING

The Bank of Canada cut its weekly net purchases of Canadian government bonds to a target of C$3 billion ($2.4 billion) from C$4 billion, saying the adjustment reflected the progress made in the economic recovery.

“Certainly this is a more hawkish statement that begins to lay the foundations for the removal of the substantial monetary policy support that has been put in place over the past year,” said Josh Nye, senior economist at RBC Economics.

While recent job growth looks positive, the Bank warned it may take considerable time for full employment to be reached. Due to population growth, Canada needs to add 475,000 jobs to return to its pre-pandemic employment rate, it said.

The Canadian dollar strengthened as much as 1.2% to 1.2459 per greenback, or 80.26 U.S. cents, its biggest gain since last June, while Canada‘s 2-year yield jumped about 4 basis points to 0.334%.

(Reporting by Julie Gordon and David Ljunggren, additional reporting by Steve Scherer, Fergal Smith, Nia Williams, Jeff Lewis and Moira Warburton; Editing by Franklin Paul, Paul Simao and David Gregorio)

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U.S. dollar rebound after Canada tips toward higher rates

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By David Henry

NEW YORK (Reuters) – A U.S. dollar rebound against major currencies was interrupted on Wednesday after Canada‘s central bank signaled it could start an interest rate hike in 2022 and reduced the scope of its asset-buying program.

The dollar index, which tracks the U.S. currency against six major peers, turned down after the announcement from the Bank of Canada and was off by 0.1% in late afternoon (1946 GMT) in New York after having been up as much as 0.24% for the day. The greenback lost about 1% against the Canadian dollar.

Earlier the U.S. dollar had rebounded from a seven-week low hit overnight against major currencies as broad weakness in stock markets triggered by a resurgence of COVID-19 cases in India and Japan encouraged a retreat to the safe-haven appeal of the greenback.

The safety bid had also supported the Swiss franc and the Japanese yen as the bright outlook for a global recovery dimmed.

But the catalyst for the move between the two North American dollars on Wednesday was a reminder that the outlook for changes in interest rates have been key to currencies as recoveries unfold. The greenback weakened through much of April as U.S. interest rates declined and as traders bet that vaccinations would open up a stronger global economic recovery and drive demand for riskier and higher-yielding currencies.

The greenback’s bounce had come with softer U.S. Treasury yields as investors reconsidered how long it might take before inflation forces the Federal Reserve to tighten monetary policy and as they saw prices for oil and stocks hit on Tuesday by the prospect of a slower global recovery because of more COVID-19 cases.

The Fed’s Open Market Committee meets next week and the European Central Bank decides policy on Thursday. Though neither is expected to signal a change in policy now, traders may hold back from big bets for a few days, said Joseph Manimbo, senior market analyst at Western Union Business Solutions.

“I think the market is just going to play it carefully in case the Fed changes its tune,” Manimbo said.

At the moment, he sees the market acting as though it is at “somewhat of a crossroads for the dollar given that it has struggled this month.”

Some analysts have said that a new inclination by the Bank of Canada to tighten monetary policy could prove to foreshadow changes by other central banks.

The Bank of Canada sharply raised its outlook for the economy and reduced the scope of its large-scale asset-buying program while keeping its key interest rate steady. It said the pandemic will be “less detrimental” to the economy than it had thought.

The central bank’s message brought back some of the appetite for risk, which carried over to other commodity-linked currencies, strategists at ANZ Research noted. The Australian and New Zealand dollars gained about 0.5%.

The benchmark 10-year Treasury yield climbed to 1.58% on the news from Canada and then hovered around 1.57%, not far from the 1.60% level at the start of the week, as the note consolidated gains after a reversal that had driven yields to a 14-month high at 1.7760% last month. The note held steady even after an auction of 20-year bonds showed strong demand.

The biggest casualty of the dollar’s rise in Wednesday trading was the euro, with the single currency weakening as much as 0.24%. It was last flat at $1.2032 after touching a seven-week high of $1.2079 overnight.

The Japanese yen, often seen as a safer refuge than the dollar, gained against the greenback to 107.86 but then drifted back to 108.08.

In cryptocurrencies, bitcoin traded around $55,500, consolidating after its dip to as low as $51,541.16 on Sunday. It set a record high at $64,895.22 on April 14.

 

Graphic: EURUSD and CESI – https://fingfx.thomsonreuters.com/gfx/mkt/yzdpxbkwdpx/EURUSD%20and%20CESI.JPG

 

(Reporting by David Henry in New York and Saikat Chatterjee in London; Editing by Will Dunham, Hugh Lawson, Jonathan Oatis and Sonya Hepinstall)

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Canadian Dollar Gain Biggest in 10 months as Bank of Canada cuts stimulus

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Canadian dollar

By Fergal Smith

TORONTO (Reuters) – The Canadian dollar surged by the most since June 2020 against its U.S. counterpart on Wednesday and the Toronto stock market rebounded as investors welcomed a move by the Bank of Canada to dial back emergency support for the economy.

The loonie strengthened 0.9% to 1.2495 per U.S. dollar, or 80.03 U.S. cents. Canada‘s main stock index ended 0.5% higher at 19,143.25, clawing back some of its decline over the previous two days.

“I think we are seeing positive sentiment toward the Canadian economy coming off the comments from the Bank of Canada today,” said Colin Cieszynski, chief market strategist at SIA Wealth Management.

The Bank of Canada signaled that it could start hiking interest rates in late 2022, as it sharply boosted its outlook for the Canadian economy and cut the pace of bond purchases to C$3 billion per week from C$4 billion.

The central bank began a large-scale bond buying program last year to support the economy during the coronavirus crisis.

The reduction in stimulus puts Canada‘s central bank at odds with some other major central banks, such as the Federal Reserve and the European Central Bank, that have said they will maintain or even increase the pace of bond buying.

“It makes sense that Canada might be one of the ones to start scaling back first … our economic numbers have been quite positive,” Cieszynski said.

Canada‘s annual inflation rate doubled to 2.2% in March, Statistics Canada said, while the average of the Bank of Canada‘s three core measures was 1.9%, up from 1.8%.

The Canadian dollar, which touched its strongest intraday level since March 18 at 1.2455, was able to rally despite pressure on the price of oil, one of Canada‘s major exports.

U.S. crude oil futures settled 2.1% lower at $61.35 a barrel amid concerns that surging COVID-19 cases in India will drive down fuel demand in the world’s third-biggest oil importer.

Still, the Toronto Stock Exchange’s energy sector advanced 0.9%, while the materials group was up 1.1%, bolstered by higher gold prices. Last Friday, the TSX notched a record high at 19,380.68.

Canadian government bond yields were higher across the curve. The 2-year rose 2.2 basis points to 0.317%, near the top if its range since the start of the year.

 

(Reporting by Fergal Smith; Editing by Kirsten Donovan and David Gregorio)

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