Bond Market Could Recover With or Without War Ending — Market Talk
1541 ET - The recovery of the U.S. government bond market is not intrinsically tied to the war in Iran ending, BMO analysts say in a research note. They've heard chatter from investors who think that only the end of the conflict will reverse the selloff in Treasuries, but they're skeptical. It's hard to envision a resolution to the conflict in the current geopolitical climate, the analysts say. Treasurys also can't just sell off indefinitely, they say. And the primary channel for the war to impact global markets has been through the energy sector so far, and the correlation between oil and yields has withered recently, the analysts say. ([email protected])1513 ET - Employment in Canada fell for a second consecutive month in September, yet Macquarie economist David Doyle remains optimistic about the labor market and the prospect unemployment will resume its downward trend. Monthly data are volatile and Doyle says he is encouraged by private-sector resilience. Macquarie continues to expect a half percentage point in interest rate increases ahead, with the first move likely in October. The upcoming inflation data and central bank business outlook survey, both due Oct. 19, will be key to whether that first cut is pushed out to December, he adds. ([email protected]; @RobbMStewart)1358 ET - Sub-Saharan African sovereigns are being supported by economic reforms and generally favorable access to external financing, leading to an improved rating profile in the region, Fitch Ratings says. Revenue-enhancing measures and spending rationalization are leading to improved fiscal performance, Fitch says, adding it expects the median sovereign in the region will record a primary fiscal surplus this year. The region's rating profile has continued to improve, with the average sovereign rating now at its highest level since the pandemic, according to Fitch. It adds that the share of sovereigns with Positive Outlooks is at a decade high, pointing to the potential for further rating improvements. ([email protected])1310 ET - The recent riot in global bond markets still leaves many opportunities for fixed-income investors. "We are still happy to be there," F/m Investments' Alex Morris says. There are "a lot of high-rated [corporate bonds] that may actually be a better credit risk in some sense than some domestic economy sovereign debt." He's staying away from hyperscalers' debt as they have multiplied and "it's hard to really pick the good from the bad." Morris expects long-term rates to come down, likely in 2027. He adds that rising government spending poses a long-term risk for bonds. ([email protected]; @ptrevisani)1130 ET - Bitcoin is up 1.2% to $82,781, bouncing back after falling as low as $80,500 overnight. Analysts this week have speculated that initial support levels for bitcoin would be around $81,000, potentially dropping back below $80,000 if that support was broken. The stronger U.S. dollar and higher Treasury yields have been a factor pushing on assets considered riskier this week, but these riskier assets and the stock market rise Friday despite the U.S. dollar index also continuing to strengthen. One factor supporting these assets is the upcoming U.S. midterm election - with traders comfortable with the expected rout of GOP candidates. "Investors tend to reward electoral clarity more than any particular outcome," says Paolo Broccardo of BankPro in a note. ([email protected])1052 ET - Canada's labor market cooled sharply in September, with job losses only partially due to the deterioration in trade negotiations between Ottawa and Washington, says Desjardins' Royce Mendes. Employment fell by roughly 68,000 last month, after falling about 42,000 in August. The education sector saw the most pronounced losses and healthcare also shed jobs, while manufacturing jobs dropped for the first time since June, Mendes says. September was the first full month since the U.S. imposed new tariffs on Canadian goods. The unemployment rate ticked up 0.1 percentage to 6.5%, though the economist says it could have been worse if not for a drop in the participation rate to the lowest in almost 30 years. ([email protected]; @RobbMStewart)1043 ET - The slump in Canada's labor market in September reduces the likelihood of a Bank of Canada rate increase late this month, but doesn't erase it, Oxford Economics' Tony Stillo argues. He continues to expect sustained inflation risk from higher gasoline prices will prompt the central bank to lift its policy rate a quarter percentage point in October and in December. But rather than starting a new tightening cycle Stillo expects the Bank of Canada will aim to swiftly return the policy rate to a neutral level as a pre-emptive move to ensure the spike in oil prices doesn't cause sustained higher inflation. ([email protected]; @RobbMStewart)1041 ET - There are reasons not to read too much into the latest Canadian job numbers, Royal Bank of Canada's Claire Fan says. The data can be volatile, firstly. And Fan notes that 70% of the sharp drop in employment in September was among youth 15-24, a group that typically sees seasonal headwinds at this time of year after the school year starts. The economist adds important leading indicators suggest hiring demand hasn't retreated to a problematic extent since the latest U.S. tariffs were imposed. Fan expects progress in the labor market earlier in the year to be sustained, and the jobless rate to broadly edge lower through the end of 2026. ([email protected]; @RobbMStewart)1039 ET - Canada's labor market lost more ground in September with a second straight month of job losses after a stronger spring and summer run, Canadian Chamber of Commerce economist Anupriya Gangopadhyay says. For the Bank of Canada, the latest labor report adds to the case for a more dovish tone at its Oct. 28 policy decision, though it doesn't make a rate cut automatic, Gangopadhyay says. "The labor market is clearly softening, but the bank will still need to balance weaker hiring against inflation and broader uncertainty." ([email protected]; @RobbMStewart)1038 ET - The Bank of Canada is in a very difficult position since the conditions of the economy still merit some degree of accommodative monetary policy but inflation risks are rising, KPMG Canada's Daniel Hyun says. A second straight month of job losses last month makes his call for a December interest rate increase a more difficult one, he adds. The economist continues to anticipate a quarter percentage point increase, saying that as bad as the September labor data was it is notoriously volatile and the central bank is faced with threats to inflation and demands for credibility.([email protected]; @RobbMStewart)1036 ET - A second consecutive month of sizable job losses in Canada washes away surprising strength in the job market through the early summer, and leaves employment up a muted 0.5% from a year ago, says Bank of Montreal's Douglas Porter. He says that while a large drop in education employment in September looks somewhat suspect, especially since it was entirely in one province, the underlying picture in other regions and industries doesn't inspire confidence. A pullback in manufacturing jobs may be an early warning of the weight from escalation in the U.S-Canada trade war. "On balance, we continue to believe that the appropriate stance by the Bank of Canada is watchful waiting, particularly so with employment suddenly clouding over." The weak jobs report for last month greatly diminishes the chances and rationale for interest rate increases, the economist says. ([email protected]; @RobbMStewart)1034 ET - The three-month average pace of employment in Canada is now in negative territory after back to back job losses in August and September, with an average decline of almost 12,000, Indeed's Sneha Puri says. Still, the economist adds Canadian employment is 0.5% higher than the same time last year. Puri doesn't expect employment to continue sliding at scale. Job postings have been fairly steady over the past year, with the Indeed Job Posting Index registering 100.8 at end-September, slightly higher than the 99.2 recorded a year prior. Puri says stable labor demand is an improvement from several years of decline. "Until we see a meaningful pick up in hiring activity, it makes sense to expect employment data to oscillate a bit between positive and negative readings." ([email protected]; @RobbMStewart)