Market Update: November 3rd, 2023

After two months of rapid yield increases governments worldwide shy away from rate hikes and decide to hit the pause button.

Topics

Interest Rate Pause
Job Loss 

Interest Rate Pauses

The United States, Canada, Europe, and England all decided to pause this month. While all have left rate increases on the table the tone of rate increases is changing. Central banks have backed off the expected rate increases that were expected at the end of this year as they are starting to see what they want in the economic numbers:

Inflation Down
Stickier Long-Term Rates
Unemployed Growing

Over the past 3 days in November, there has been a large reversal in government bond rates as the central banks back off. This has given relief to the equity and fixed-income markets as they recover from a terrible two months. The 10-year US Treasury pulled back down after touching 5% only a week ago.

In Canada, we have seen the 5-year government bond yield absolutely crash from its highs about a month ago.

This rate is very important to Canadians because mortgage rates are based on this and we have seen a 0.6% decrease in a matter of only a month. Mortgage rates should follow this down and if this can remain lower you will see a drop in mortgage rates very soon.

Job Loss

The rates in Canada have rapidly decreased due to the extreme weakness in the job market. The yields are telling us that the Bank of Canada is going to have to do something to help its citizens. After hovering around 5.5% for a few months, we got a huge uptick today to 5.7%.

This should be expected as you can ask any Canadian how much they are pulling back on spending in their day-to-day lives. Last month's jobs were all attributed to the education services field and if were not for that this growth would appear slightly more gradual.

In the US, they broke to 3.9% which is dangerously close to the 4% level that their central bank watches ever so carefully.

This most likely will continue as larger companies continue to look to become “more efficient” which means cutting jobs. 

We are heading into the seasonally strong 4th quarter but weakness there will definitely look bad, and we could be in for rate cuts sooner than projected.

Summary

We have been seeing the cracks for a while now and now those cracks are showing up in the headline numbers. This should continue as once we start moving in that direction it takes time to turn that ship around. The markets should like this news and will turn around before the economy. We have been seeing that over the past 3 days, as markets have erased the entire negative performance of October just to start November.

Sincerely,

Justin, Konrad, Merriel

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