Wall Street’s main indexes ended lower on Friday - but the TSX closed higher - in a seesaw session, as investors digested jobs reports on both sides of the border that showed some cracks in the labour market but probably not enough to prevent further central bank interest rate hikes.
The U.S. added the fewest jobs in 2-1/2 years in June, although persistently strong wage growth pointed to still-tight labor market conditions, U.S. government data showed.
The Canadian economy created 60,000 jobs in June, three times the Street expectation. The unemployment rate rose, however, and average hourly wages increased at a slower pace than economists had anticipated.
The benchmark S&P 500 was solidly higher for most of the afternoon, but stocks sold off toward the end of the session. The S&P/TSX Composite Index also ended off its highs for the day.
“Investors are more cautious going into a very important week with the beginning of earnings season and a very important inflation reading mid-week,” said Quincy Krosby, chief global strategist at LPL Financial.
The U.S. report showing nonfarm payrolls increased by 209,000 jobs last month followed a stock sell-off on Thursday sparked by a surge in June private payrolls that stoked fears the Federal Reserve would move aggressively to hike interest rates to tame inflation.
“The jobs report today I think is consistent with what the Fed would like to see,” said Josh Jamner, investment strategy analyst at ClearBridge Investments.
“That’s not to say, mission accomplished or the job is done. But continued cooling in the jobs market ultimately will make their lives easier.”
Money markets are growing increasingly confident another rate hike is on the way in Canada.
Implied interest rate probabilities based on trading in swaps markets as of mid-afternoon Friday show a 67% probability of a quarter point Bank of Canada rate hike next week, according to Refinitive Eikon data. That’s up from 58% prior to the data being released. Just days ago, markets had priced in closer to 50-50 odds.
Those expectations are being reflected in the bond market. On Friday afternoon, Canada’s five-year government bond yield was up more than 10 basis points to more than 4% - reaching levels it hasn’t seen in nearly 16 years. The bond yield is heavily influential on the setting of fixed mortgage rates and guaranteed investment certificates in Canada.
Meanwhile, markets are pricing in about 90% odds that the Fed will raise rates at its meeting later this month after pausing in June, as job growth remains above the pace in the decade before the pandemic.
Chicago Fed President Austan Goolsbee on Friday said he does not disagree with his fellow U.S. central bankers that rates will need to rise a couple more times this year to beat back too-high inflation.
The TSX ended up 20.35 points, or 0.1%, at 19,831.04.
For the week, the index was down 1.6% as investors worried that central bank rate hikes could slow the global economy.
Energy rose 2.8%, while the materials group, which includes precious and base metals miners and fertilizer companies, added 1.3% as gold and copper prices climbed.
The price of oil settled 2.9% higher at $73.86 a barrel as supply concerns and technical buying outweighed fears that further central bank tightening could slow economic growth and reduce demand for oil.
Still, six of the TSX’s ten major sectors ended lower, including a decline of 1.3% for industrials.
The Dow Jones Industrial Average fell 187.38 points, or 0.55%, to 33,734.88, the S&P 500 lost 12.64 points, or 0.29%, to 4,398.95 and the Nasdaq Composite dropped 18.33 points, or 0.13%, to 13,660.72.
Among S&P 500 sectors, defensive groups fell the most, with consumer staples down 1.3%. Energy gained 2.1% while materials rose 0.9%.
The small-cap Russell 2000 ended up 1.2% on the day.
Major indexes ended with weekly losses after a strong first-half of the year. For the week, the S&P 500 fell about 1.2%, the Dow slid roughly 2% and the Nasdaq dropped 0.9%.
In company news, Levi Strauss & Co shares tumbled 7.7% after the denim clothing maker cut its annual profit forecast.
Shares of Rivian Automotive surged 14.2% after the electric vehicle maker reported better-than-expected quarterly deliveries.
U.S.-listed shares of Alibaba gained 8% after Chinese authorities said they will impose a $984 million fine on Ant Group, ending the affiliate fintech company’s years-long regulatory overhaul.
Advancing issues outnumbered decliners on the NYSE by a 2.49-to-1 ratio; on Nasdaq, a 2.00-to-1 ratio favored advancers. The S&P 500 posted 11 new 52-week highs and five new lows; the Nasdaq Composite recorded 45 new highs and 63 new lows. About 10.3 billion shares changed hands in U.S. exchanges, compared with the 11.1 billion daily average over the last 20 sessions.
Reuters, Globe staff