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North American markets mixed on new US jobs data

It was a mixed day for North American markets on Friday as investors tried to figure out what a surprisingly hot U.S. jobs report says about the overall economy as well as what it could mean for central bankers who seek to curb inflation.

The S&P/TSX Composite Index rose 43.09 points to 19,620.13, while in New York, the Dow Jones Industrial Average rose 76.65 points to 32,803.47. The S&P 500 index fell 6.75 points to 4,145.19, while the Nasdaq composite fell 63.02 points to 12,657.56.

With few other data releases or market events to digest this summer on Friday, investors’ eyes were largely focused on the latest monthly employment numbers from the United States and Canada.

South of the border, the July report from the US Department of Labor came as a shock. The country added 528,000 jobs during the month, more than double the 250,000 economists expected, making July the hottest month for U.S. job creations since February.

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Unemployment in the United States fell another notch, from 3.6% to 3.5%, matching the more than 50-year low reached just before the pandemic took hold.

The numbers paint a picture of a U.S. economy not slowing down, making it more likely that the Federal Reserve will continue on its course of monetary tightening _ likely with another interest rate hike of up to three-quarters of a percentage point in September, said Anish Chopra, chief executive of Portfolio Managing Corp.

“Some investors expected the Fed to pivot, which means that at some point the Federal Reserve would stop raising rates and actually cut them,” Chopra said. “But given today’s strong reading, the U.S. Federal Reserve is unlikely to cut interest rates anytime soon.”

In Canada, the employment situation was more gloomy. In fact, Statistics Canada said Friday that the Canadian economy lost 31,000 jobs in July, marking the second consecutive month of job losses in this country.

But Canada’s unemployment rate held steady at 4.9% in July, the lowest since comparable record-keeping began in 1976, Statistics Canada said. Chopra said that makes it unlikely that the Bank of Canada will be swayed by its current path of rising interest rates.

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“When you look at the strong backdrop with the high price of oil, the Canadian economy continues to move forward… it’s likely that the Bank of Canada will continue its momentum to raise interest rates,” did he declare. “So regardless of whether Canada has lost jobs over the past two months, investors are looking to the fact that the Bank of Canada will likely continue on its rate-tightening path.”

Bond yields immediately rose on the heels of Friday’s employment reports. Chopra said another very important data release will arrive next Wednesday, when the latest U.S. consumer price index numbers will give an indication that inflation is showing signs of having peaked.

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On the equity side, investors hailed a better-than-expected second-quarter earnings season for U.S. and Canadian companies. But with inflation and central bank interest rate hikes comes the risk that the economy will tip into recession, hurting corporate profits and shareholder returns.

Chopra said in the weeks and months ahead, investors will be watching to see if any companies issue third-quarter earnings warnings — which would be a sign the economy is heading into dangerous territory.

“It takes some time for rising interest rates to have an impact on businesses and economies,” he said.

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The Canadian dollar was trading at 77.32 cents US against 77.80 cents US on Thursday.

The September crude contract was up 47 cents at US$89.01 a barrel and the September natural gas contract was down 6 cents at US$8.06.

The slight gain in oil prices came after a tough week for crude. West Texas Intermediate’s benchmark price fell below $90 for the first time since Russia invaded Ukraine this week, due to what some analysts called the start of the “destruction of the demand” due to months of high prices.

Canadian energy stocks have felt the impact of lower oil prices, with the S&P/TSX Capped Energy Index falling 9.5% since the start of the week.

The December gold contract was down US$15.70 at US$1,791.20 an ounce and the September copper contract was up seven cents at US$3.55 per pound.

– With files from the Associated Press

© 2022 The Canadian Press