Economy

OTTAWA (Reuters) -Canada shed jobs for a third straight month in August and the jobless rate unexpectedly jumped to 5.4%, Statistics Canada data showed on Friday, hinting that higher interest rates are starting to cool the overheated economy.The economy lost a net 39,700 jobs in August, missing analyst forecasts that it would add 15,000. The jobless rate was also worse than expected, with analysts having predicted it would edge up slightly to 5.0% from a record low 4.9% in July.”I think this can be taken as a reasonable indication that the economy is, in fact, slowing,” said Andrew Kelvin, chief Canada strategist at TD Securities. “When you look at the increase in the unemployment rate, that does suggest that maybe a little bit of slack is starting to return to the labor market, though it’s not a complete process and it will be a slow process,” he added.Canada has lost a net 113,500 jobs in the last three months, the vast majority in full-time work. Despite this decline, full-time employment remains 3.9% higher than a year ago, Statscan said.Employment last month fell mostly among young women and people aged 55 to 64. The overall participation rate ticked up to 64.8% as 66,200 people joined the labor force.Wage gains continued to accelerate in August, up 5.6% on the year compared with 5.4% in July, and more people said they were planning on leaving their current jobs in the next 12 months, citing pay and benefits as their top reason.That wage pressure, which can fuel inflation, will likely keep the Bank of Canada in rate-hiking mode, economists said.”I think the Bank will be more focused upon the wage side of the picture – the modest acceleration that we have there that’s ongoing,” said Derek Holt, vice president of Capital Markets Economics at Scotiabank.”I don’t think they will be overly alarmed by the weakening in the jobs reading.” Canada’s central bank lifted its policy rate to 3.25% on Wednesday, its highest level in 14 years, and made clear more tightening was coming as it battles inflation that is running near a four-decade high.The Canadian dollar surrendered some of its earlier gains after the data. It was trading 0.4% higher at 1.3035 to the U.S. dollar, or 76.72 U.S. cents. More

(Reuters) – Wall Street’s main indexes were set to open higher on Friday following a boost from technology and high-growth stocks, with investors awaiting key inflation data next week for clues on the pace of interest rate hikes by the Federal Reserve.Fed Chair Jerome Powell’s hawkish comments spurred volatility in U.S. stock markets on Thursday, but the three major indexes are still on track to post weekly gains and snap a three-week losing streak.”We got oversold in the last couple of weeks in August and this is a relief rally,” said Dennis Dick, head of markets structure at Triple D Trading.”The market is, to a certain extent, getting ahead of next week’s CPI (consumer prices index) data. It’s fairly predictable that the data next week is going to be light. We’ve had significant commodity deflation over the course of the last four weeks.”Investors will watch for the August U.S. inflation report due next Tuesday to gauge the likelihood of another large interest rate hike from the Fed at its policy meeting later in the month. Traders are pricing in an 87% chance of a 75 basis point rate hike at the next meeting, up from 57% a week earlier, according to CME Group’s (NASDAQ:CME) Fedwatch tool.Several Fed policymakers including Fed Kansas City President Esther George, a voting member of the rate-setting committee this year, are scheduled to speak later in the day.Adding to the upbeat mood on Friday was data showing China’s consumer and producer prices rose less than expected in August, which fanned hopes for more stimulus from Beijing.Still, the S&P 500 and the tech-heavy Nasdaq are down nearly 7% and 9.6%, respectively, from their peaks hit in mid-August, as the Fed and other major central banks reaffirmed their commitment to bring down decades-high inflation.U.S. equity funds recorded outflows of $11.5 billion in the week to Wednesday, their largest outflow in 11 weeks, BofA said on Friday citing EPFR data.At 8:51 a.m. ET, Dow e-minis were up 248 points, or 0.78%, S&P 500 e-minis were up 36 points, or 0.9%, and Nasdaq 100 e-minis were up 139.5 points, or 1.13%.The CBOE volatility index, a gauge of investor anxiety, remained elevated at 23 points, which is above its long-term average of 20.High growth stocks Tesla (NASDAQ:TSLA), Apple Inc (NASDAQ:AAPL), Alphabet (NASDAQ:GOOGL) Inc, Amazon.com Inc (NASDAQ:AMZN) all rose more than 1% in premarket trading.Digital World Acquisition Corp, the blank-check acquisition firm that agreed to merge with Donald Trump’s social media company, was up 3.6%. The company said it would extend its life by three months after its bid to win a 12-month extension from its shareholders fell short.Kroger (NYSE:KR) Co rose 3.4% after the U.S. grocer raised its annual forecast. More

PRAGUE (Reuters) – Euro zone finance ministers agreed on Friday to act together to protect households and companies from soaring energy prices, coordinating their support policies with the European Central Bank to avoid adding to inflationary pressures.The ministers from the 19 euro zone countries agreed support should focus on providing money to help people and industry cope but that this should be regarded as an emergency measure and be carefully targeted where possible.Support for companies should be coordinated across borders to preserve fair competition.”We acknowledge and we agree that we must reduce inflation,” the chairman of euro zone finance ministers Paschal Donohoe told a news conference. “The failure to do so will make our citizens, the people of Europe, poorer for longer,” he said.France, Germany and other countries have announced multibillion-euro packages to help business and consumers cope with soaring inflation. The Bruegel think-tank estimates EU government support has already reached 282 billion euros ($285 billion), with more on the way.But the support itself can fuel inflation, creating a vicious circle. “Our interventions will be coordinated with the monetary policy of the ECB and we will make all efforts to avoid adding to the inflationary pressure to which the ECB and we as finance ministers are responding to,” Donohoe said.The ECB raised its key interest rates by an unprecedented 75 basis points and promised further hikes, prioritising the fight against inflation as the bloc is likely heading towards a winter recession and gas rationing.Asked how the ministers would reconcile pumping more money into to the economy through support measures while avoiding adding to inflation, Donohoe said the answer was in the scale and design of the measures, but that it was a complex challenge.European Economic Commissioner Paolo Gentiloni said the difficulty was in keeping the support targeted and temporary. “I know it is very difficult because when you introduce a measure the tendency to leave it there is inevitable and it is difficult to limit your support to certain groups,” he said.ECB President Christine Lagarde noted that there was some improvement in the design of European support schemes but noted there was still need for improvement.”It was 10% of the measures that were tailored and targeted, now we are moving to 15%, and there is a clear need of improvement in that respect,” she said, adding that when it came to efficiency, income transfers were preferable to price caps.In Brussels, EU energy ministers are discussing a long list of proposals from the European Commission to tackle the region’s energy crisis, including a price cap on Russian gas, a windfall levy on non-gas power plants, a bloc-wide cut in electricity demand, and emergency credit lines for power firms facing soaring collateral requirements.($1 = 0.9904 euros) More

Employment in the goods producing sector fell by a net 13,900 jobs, largely in construction. The services sector was down by a net 25,800 positions, mostly in educational services.Market reaction: CAD/STORY:Link:https://www150.statcan.gc.ca/n1/daily-quotidien/220909/dq220909a-eng.htmCOMMENTARYANDREW GRANTHAM, SENIOR ECONOMIST, CIBC CAPITAL MARKETS”The weak headline figures may have the Bank of Canada questioning its apparent commitment to even higher interest rates. However, with the decline in education employment potentially reversing ahead, and with one more labour force survey before the Bank’s October meeting, it still seems likely that at least one more rate hike will be in store before a pause is seen.”ANDREW KELVIN, CHIEF CANADA STRATEGIST, TD SECURITIES”I think this can be taken as a reasonable indication that the economy is, in fact, slowing. Even if jobs had come in as expected I don’t know if I would be exceptionally encouraged by that sort of number. When you look at the increase in the unemployment rate that does suggest that maybe a little bit of slack is starting to return to the labor market though it’s not a complete process and it will be a slow process. But if you’re thinking about this from a monetary policy standpoint the focus is still on bringing inflation under control. Wages did accelerate a little bit here so I don’t know if you see any respite on the inflation front. The BOC’s focus is going to remain on bringing inflation under control so I don’t see them moderating their tone at all in response to those numbers.”DEREK HOLT, VICE PRESIDENT OF CAPITAL MARKETS ECONOMICS, SCOTIABANK”I think the Bank (of Canada) will be more focused upon the wage side of the picture – the modest acceleration that we have there that’s ongoing. So I don’t think they will be overly alarmed by the weakening in the jobs reading.””I am little bit suspicious toward some of the quality of the numbers … a 50k drop in education at this time of the year and the concentration in youths suggest that at least some of this may be faded in terms of the job loss.” More

Leaders across Europe are scrambling to keep the lights on and U.S. inflation data should provide the last piece in the puzzle ahead of the Federal Reserve’s September meeting.China meanwhile is trying to get banks to help spur the economy and Volkswagen (ETR:VOWG_p) seems set to embark on listing luxury car maker Porsche against a volatile markets backdrop. Here is a look at the week ahead in markets from Kevin Buckland in Tokyo, Sumanta Sen in Mumbai, Emma-Victoria Farr in Frankfurt, Bill Schomberg, Vincent Flasseur and Karin Strohecker in London, and Lewis Krauskopf in New York.1/ BRITAIN IN CRISISPolicymakers and investors are gauging the implications for inflation from the government’s huge energy bill bailout for households. The measures will bring down price pressures in the short term but could stoke them further ahead as consumers are spared the worst of the hit to their finances. The Bank of England has just postponed its meeting, originally scheduled for Sep. 15 to Sep. 22 following the death of Queen Elizabeth. Many economists think it will raise interest rates by a further 50 basis points – normally a huge increase but less than the 75 bps rate hike that investors had been betting on increasingly until a few days ago.Policymakers will have a few more data points that are scheduled for release to chew over before then, including economic output figures for July on Monday, the latest job market readings on Tuesday and August inflation on Wednesday. Bank of England under pressure https://graphics.reuters.com/GLOBAL-MARKETS/THEMES/movanewmkpa/chart.png 2/RUNNING OUT OF GASFaced with soaring energy prices that threaten to spark social unrest, necessitate rationing and inflict a recession, Europe’s leaders are scrambling to pull together radical plans to counter Russian President Vladimir Putin’s gas cut-off.Governments are spending hundreds of billions of euros to help consumers and businesses cope with runaway bills. A plan from Britain’s new government could cost as much as 150 billion pounds, sending its currency to near-four decade lows.Euro zone energy ministers gather on Friday in Brussels to set plans in motion and discuss options – including gas price caps and emergency credit lines for energy market participants, though there are no pain free solution in sight.Meanwhile more oil-importing countries – for example India – are considering joining the Group of Seven wealthy nations’ plan to cap the price of Russian oil, Washington said. Put a cap on it https://graphics.reuters.com/GLOBAL-MARKETS/THEMES/egpbkrjngvq/chart.png 3/PRICING POWER    Tuesday’s U.S. inflation data is one of the last – and perhaps the most important – pieces of data that will help the Fed decide how aggressively it needs to hike rates in September.     July’s CPI report showed a surprising moderation in prices that helped spur a rebound in stocks. That rally has since faded with Fed chair Jerome Powell warning that the Fed’s single-minded fight to tame inflation could lead to economic pain.    On an annual basis, CPI increased by a weaker-than-expected 8.5% in July, with the inflation gauge coming in flat, month-over-month. Early estimates for August call for a 0.1% decline on a monthly basis, but wildcards such as volatile energy prices are keeping investors on edge. U.S. inflation https://graphics.reuters.com/GLOBAL-MARKETS/THEMES/egpbkraxmvq/chart.png 4/ PUSHING ON A STRING? A downside surprise on Chinese inflation data on Friday cheered markets because it seems to afford policymakers plenty of room to ease and help boost a flagging economy. But loan figures out shortly afterward pointed to the dilemma: who wants to borrow in a downturn? Loan growth is scarcely budging, and a meagre rise in August was below analysts’ hopes. The central bank has already flooded the system with cash, without improving confidence, since there is no clear path out of a deepening property crisis or COVID-19 lockdowns. More help has been promised, but is yet to meaningfully arrive, leaving the Hang Seng lingering near major lows and the yuan close to a two-year trough.Data on industrial production, house prices and retail sales due on Sep. 16 will give more indications on the state of the world’s second largest economy. Yuan decline https://graphics.reuters.com/GLOBAL-MARKETS/THEMES/jnpwemaobpw/chart.png 5/BOLD DEBUTIt’s been a bleak year for capital markets. But that might not detract Volkswagen from listing luxury car maker Porsche.Volkswagen fired the IPO starting gun even as European stock markets reeled from record inflation and the Russia energy standoff. The next three weeks will be crucial as bankers gather investor feedback and begin book building. At the high end of estimates – investors expect a valuation between 60-85 billion euros ($60.4-$85.5 billion) – the IPO could be the largest in German history and the biggest in Europe since 1999, Refinitiv data showed.Porsche will only backtrack on its stock market debut if “severe geopolitical problems arise”, the sportscar brand’s chief financial officer said on Tuesday. The Frankfurt Stock Exchange has only seen two SPACs and one small primary listing in 2022. European IPO volumes https://graphics.reuters.com/GLOBAL-MARKETS/THEMES/akvezbegxpr/chart.png ($1 = 0.9939 euros) More

Some investors had expected that the Fed might temper its rate increases to avert an economic slowdown, which in turn would boost risk assets.According to Refinitiv Lipper data, investors withdrew a net $14.83 billion out of U.S. equity funds, posting the biggest weekly outflow since June 15. GRAPHIC: Fund flows: US equities, bonds and money market funds https://fingfx.thomsonreuters.com/gfx/mkt/jnvwemjoyvw/Fund%20flows%20US%20equities%20bonds%20and%20money%20market%20funds.jpg Investors offloaded $4.21 billion worth of U.S. growth funds in a fourth straight week of net selling, while value funds recorded outflows at $2.79 billion after a week of net purchases. GRAPHIC: US growth and value funds https://fingfx.thomsonreuters.com/gfx/mkt/lbvgnkjxjpq/Fund%20flows%20US%20growth%20and%20value%20funds.jpg Sectoral funds’ data showed that financials, consumer discretionary and tech, all booked outflows, amounting to a net $957 million, $849 million, and $400 million, respectively. GRAPHIC: Fund flows: US equity sector funds https://fingfx.thomsonreuters.com/gfx/mkt/akvezbelmpr/Fund%20flows%20US%20equity%20sector%20funds.jpg However, U.S. bond funds drew a net $1.51 billion in inflows after witnessing two straight weeks of outflows. Taxable bond funds recorded net inflows at $2.73 billion, though municipal funds had a fifth weekly outgo, worth $1.25 billion.Investors bought short/intermediate government & treasury funds of $5.14 billion, but high yield and loan participation funds witnessed $2.26 billion and $808 million worth of net selling. GRAPHIC: Fund flows: US bond funds https://fingfx.thomsonreuters.com/gfx/mkt/lgvdwdjbxpo/Fund%20flows%20US%20bond%20funds.jpg Meanwhile, selling in money market funds continued for a second successive week as investors withdrew a net $5.22 billion. More

(Reuters) -Germany’s debt office will not need to seek alternative ways to invest its central bank cash deposits after the ECB decided to temporarily pay interest on government deposits, a finance agency spokesperson told Reuters on Friday. The ECB said on Thursday it would pay interest on governments’ cash deposits until April 30 2023, temporarily removing a 0% cap after it hiked rates. Analysts had warned that had the 0% cap remained after Thursday’s rate hike, it would have incentivized government debt offices to cut some of their cash balances at their central banks.Cash balances held by euro area debt management offices are worth some 600 billion euros ($598 billion), according to ING Bank.A further bond squeeze would have potentially put downward pressure on overnight money market rates, hindering the transmission of ECB rate hikes into the financial system at a time of record high inflation.”As it remains possible for us to deposit liquidity with the central bank at market conditions, as of today we don’t have to make use of alternative investment options,” the spokesperson said. She confirmed the finance agency would not make changes or seek alternative investments until the ECB’s removal of the cap expires in April 2023. Noting that central banks will effectively stop paying interest on the deposits from May 2023, “how our cash balance will look like from that point onwards remains to be seen. If still positive we would use alternatives to the deposit at the Bundesbank,” the spokesperson said, referring to Germany’s central bank. A particular concern was that debt offices would stop lending out their bonds in return for cash through repurchase agreements, or repos, or conduct reverse repos, where they lend cash in return for bonds.Reverse repos are a tool the finance agency has always used when required and “economical”, the spokesperson said. The lending of bonds to investors in the repo market is a crucial part of market infrastructure. It has been critical for investors this year as benchmark issuer Germany has increased lending given a worsening bond shortage. More

The ECB raised its key rates by an unprecedented 75 basis points on Thursday and promised further hikes, prioritizing the fight against inflation even as the bloc is likely heading towards a winter recession and gas rationing.”It is likely to be another close call in October and we have shifted our view to expect another 75bp hike (previously: 50bp),” Deutsche Bank (ETR:DBKGn) analysts said in a note. They noted guidance from ECB chief Christine Lagarde that rates are “far away” from levels appropriate for getting inflation back to target in a timely fashion and that hikes should be anticipated at the “next several meetings.” “This underscores the ECB’s insensitivity to the growth headwinds and laser focus on bringing inflation down,” the Deutsche note said.Credit Suisse on Friday also raised its ECB rate-hike forecast, noting the ECB’s language pointed to more aggressive tightening ahead.It said it now expected a 75 bps rate hike in October, versus a forecast for a 50 bps move earlier, and lifted its forecast for the ECB’s terminal rate to reach 2.5% from a previous estimate of 2%.Citi meanwhile said it continued to expect a 75 bps ECB hike in October and a 50bp hike to 2% in December before the weak economy stops further hikes. Money markets were on Friday fully pricing in a 50 bps rate hike in October and implied a roughly 25% chance of a more aggressive 75 bps move.Still, anticipation of more hawkish stance from the ECB appeared to be supporting the euro, which was trading back above $1 on Friday. More