TORONTO – September trading activity starts in earnest on Tuesday as traders return from a long weekend to deal with a trio of major events that will unspool throughout the week.
The Bank of Canada was expected to announce no changes in interest rates when the central bank makes its next scheduled rate announcement on Wednesday, while economists expect modest job growth when Statistics Canada releases its August employment report on Friday.
But the event that will have a greater impact on stock markets hapens Thursday night when U.S. president Barrack Obama unveils his jobs program before a joint session of congress.
“Let’s face it, Obama is going to have to pull one heck of a rabbit out of his hat with his job proposals next week,” said Gareth Watson, vice president at Richardson GMP Ltd.
Anticipation over the speech grew amid deep disappointment heading into the Labour Day weekend after the August non-farm payrolls report showed flat monthly net job growth in August, the first time that has happened since early 1945.
The weakness in employment was underscored by revisions to the jobs data for June and July. Collectively, those figures were lowered to show 58,000 fewer jobs added. The downward revisions were all in government jobs.
“I’ll be honest when I say I’m not sure what to expect but I would hope that, I think that the government does have a number of levers at its disposal,” added Watson.
Get weekly money news
But Watson said he does think that for one thing, the government will have to offer tax incentives for people to hire the unemployed.
“There is probably going to have to be some type of benefit for like a small business tax credit of some description to get people, like small businesses are going to have to be a part of this recovery,” he said.
“You can’t expect the General Electrics and the Bank of Americas and the big large cap names just to go out and hire people because first of all, these companies did downsize during the recession but they’re not hiring like crazy because they’re still very uncertain about the future.”
However, other analysts caution against expecting too much from Obama’s speech.
For one thing, he could find resistance from the Republican-controlled House of Representatives from anything that even smacks of higher spending.
And Kate Warne of Edward Jones in St. Louis said there are just the limits on what government can do.
“Anybody who is expecting him to do very much, needs to think a bit more carefully about what the president can actually do in this situation,” she said.
“The problem is there’s a general perception that the economy isn’t good and the government is part of the problem rather than part of the solution. But I don’t think anything Obama says is likely to change that perception … because he seems to continue to think that the government should do something instead of trying to figure out how to help companies create jobs.”
Meanwhile, traders will look to Bank of Canada governor Mark Carney for an indication of where interest rates are headed when the bank makes its next announcement on rates Wednesday.
It wasn’t so long ago that it was expected that the central bank would resume raising rates from its one per cent level this autumn. But that was before global economic conditions started to deteriorate, including those in Canada. Data last week showed the economy actually shrank slightly in the second quarter, although performance did improve in June.
If anything, markets expect the Bank of Canada could well lower rates in the next few months.
“A quarter-point cut is already nerly priced-in for January,” observed BMO Capital Markets senior economist Michael Gregory.
But he added that he expects this won’t be necessary as a second-half rebound in the economy is likely in the cards.
“The key takeaway from the policy announcement will be that rates will be low for a lot longer,” he added.
Meanwhile, the consensus calls for the Canadian economy to have crated about 25,000 jobs during August following a gain of just over 7,000 in July.
However, economists at CIBC World markets forecast job gains in the neighborhood of 10,000.
“With the month’s U.S. debt downgrade, equity market selloff and widespread re-awakening of recession fears, businesses may have temporarily scaled back aggressive hiring plans, leaving private sector gains flat,” said CIBC economist Emanuella Enenajor in a commentary.
Comments