How traders and economists are reacting
Traders in money markets are now putting significantly higher odds that the Bank of Canada will deliver another large 50 basis point rate cut in December following weaker-than-expected jobs data this morning. Many economists concur that a large rate cut is in the offing.
Implied probabilities in overnight swaps markets put the odds of a 50 basis point rate cut on Dec. 11 at 58%, and about 42% for a 25 basis point cut. The Bank of Canada will have another jobs report to analyze before making their decision on interest rates next month, so these probabilities are bound to change. But here’s how implied probabilities of future interest rate moves stood in swaps markets following today’s 830 am ET data, according to LSEG data. The overnight rate currently resides at 3.75 per cent. While the bank moves in quarter point increments, credit market implied rates fluctuate more fluidly and are constantly changing.
At first glance, the 14.5k rise in headline employment doesn’t seem that bad, even if it is a big slowdown from the 46.7k gain the month before. However, employment was propped up by another strong 33.0k rise in employment for those aged 16 to 24, whereas prime-age employment fell by 11.1k. This casts doubt on our view that youth employment rose so strongly in September because of a seasonal quirk.
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