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The Canadian economy gained a net 21,800 jobs in February, exceeding analyst forecasts for a gain of 10,000 jobs, while the unemployment rate also unexpectedly held steady at 5.0%, Statistics Canada data showed on Friday.

Yet, the stronger-than-expected report hasn’t convinced most economists that the Bank of Canada will need to hike interest rates again to cool an economy that continues to show surprising resiliency.

And even with strong employment reports in both Canada and the U.S. this morning, money markets are pricing in lower odds that the BoC will hike its trend-setting overnight rate again later this year. In fact, they are close to nearly completely pricing out further rate hikes by the bank this year.

Here’s what implied probabilities for future rate moves are saying based on trading in swaps markets at 11 a.m. ET, according to data from Refinitiv Eikon. The current Bank of Canada overnight rate is 4.5%. While the bank moves in quarter point increments, credit market implied rates fluctuate more fluidly and are constantly changing:

Meeting DateImplied RateBasis Points

And here’s what they were showing just prior to the Canadian and U.S. jobs reports at 8:30 a.m. ET:

Meeting dateImplied rateBasis points

Source: Refinitiv

Data as of 8:22 a.m. ET

The Bank of Canada’s next decision on interest rates is scheduled for April 12. Money markets are now placing odds of about 8% that the bank will hike rates by a quarter-point at that meeting. That’s down from an 18% probability prior to the 830 am ET data. And at no point this year do money markets assign a greater than 12% probability of a further interest rate hike. Money markets are now even pricing in about a 20% probability of an interest rate cut by the end of this year.

The bank held rates steady at its policy announcement on Wednesday, and suggested any further moves would be data dependent.

Net job gains in Canada in February were well below the blockbuster 150,000 surge reported in January. But average hourly wages accelerated, rising 5.4 per cent in February, in a negative development for the overall inflationary picture.

With the Canadian jobs report only modestly stronger than expected, markets took their cue more from the U.S. jobs report released at the same time, which contained hints of an easing in inflationary pressures. The non-farm payrolls report showed the U.S. economy adding jobs in February at a higher clip than the Street expected, but average hourly earnings only rose 0.2% last month after gaining 0.3% in January, while the unemployment rate rose to 3.6%.

Traders are now pricing in a 28% chance of a 50-basis-point hike from the Fed this month, compared with a 50% chance before the numbers were released.

Meanwhile, the failed attempt by U.S. bank SVB Financial Group to raise capital, which has spread uncertainty through global financial stocks, may also be dampening money markets’ expectations for further monetary tightening by central banks.

Reflecting these concerns ricocheting across markets, as well as the signs of inflationary easing in the U.S. jobs data, global investors are shifting money into bonds today. That’s pushing yields down, with the benchmark U.S. 10-year Treasury yield off by about 20 basis points, to 3.72%. The Canada 5-year bond yield - influential on fixed mortgage rates and GIC rates of the same tenure - is down 14 basis points at 3.22%, its lowest level in a month.

Here’s a snapshot of what economists are saying about the Canadian jobs report this morning, as well as the turmoil that’s erupted over SVB:

David Rosenberg, founder of Rosenberg Research

The details of the report were solid, with the entirety of the gains seen in private sector, full-time positions and the labour force participation rate holding steady at a 9-month high. That being said, looking past the month-to-month wiggles in this notoriously volatile series, it’s clear that the overall trend of employment growth is slowing. Indeed, the year-over-year trend has slowed to 2.1% from 5.5% at this time last year. As such, we don’t believe there’s enough in this report to cause the Bank of Canada to reconsider its “conditional pause” strategy — even with the upside surprise on wages.

Derek Holt, head of Capital Markets Economics, Scotiabank

Canada’s jobs juggernaut continues to march on and in ways that reignited wage pressures while pointing toward a strong rebound in GDP.

At the margin the evidence continues to support the narrative that the BoC isn’t done yet. I think contract pricing for each of the next three meetings is underestimating the risk of a hike. Interfering with market pricing are what I think to be exaggerated market reactions to Silicon Valley Bank and a different interpretation of US jobs numbers... . Wage pressures and rebounding GDP both add inflation risk.

Matthieu Arseneau and Alexandra Ducharme, economists with National Bank Financial

Not only were the jobs created above the economists’ consensus, but the evolution of hourly wages also surprised the economists upwards in February. However, there is no need to be too alarmed as signs of moderation are pointing. While the jobless rate is comparable to its last summer through, the labour market is not as red-hot as it was back then. Historically, consumers have been clairvoyant in perceiving reversals in the labor market. The most recent conference board data tells us that optimism about the labor market outlook is waning, with the indicator back to its 2019 level after reaching all-time highs in 2021. Others indicators also suggest that a slowdown is in the cards. Sluggish business formation and plunging corporation profits and business investments in Q3 and Q4 all point for a soft patch on the labour market going into 2023. Hence, it remains important to let the extremely tight monetary policy to do its work before concluding that the central bank has not done enough, especially since Canada is importing a tightening of financial conditions that continues in the United States.

Andrew Grantham, senior economist with CIBC Capital Markets

Although employment growth wasn’t as dramatic this month as it has been in the recent past, the underlying trend remains stronger than what would normally be justified by the pace of GDP. Because of that, we still expect to see some softer employment figures and a gradual rise in the unemployment rate throughout the balance of this year, particularly as economic activity slows further with the lagged impact of past interest rate hikes. However, for now the still historically low unemployment rate and strong wage growth will keep the Bank of Canada leaning towards future rate hikes, although we still don’t think the data will be strong enough for policymakers to actually move again.

James Orlando, director and senior economist, TD Economics

For the Bank of Canada, the headline print might be more ‘normal’ compared to prior months, but it is still too high. Although the BoC has been effective at slowing the parts of the economy most sensitive to interest rates, and it has seen inflation decelerate confidently, a more decisive turn is needed. Given that the BoC is in wait-and-see mode with its conditional pause, it believes that it is only a matter of time before a slowdown shows up in the broader economy. But with today’s labour market report, it will have to wait a little while longer.

Douglas Porter, chief economist, BMO Capital Markets

As a standalone report, there is nothing particularly remarkable about today’s employment update, besides perhaps the snapback in wages. But arriving on the heels of the January jobs jamboree, this result is far too strong for the BoC’s comfort. There simply is no sign that the labour market is succumbing whatsoever to the rapid-fire tightening of the past year. We won’t adjust our call on the BoC just yet, but the economy is likely just one wrong turn on the inflation front away from the Bank flipping back into rate-hiking mode. ...

The troubles at SVB Financial have overshadowed other fundamental factors. ... Amid the rapid-fire rate hikes of the past year, many financial commentators were steadily looking for any cracks to emerge, as almost inevitably happens amid every serious monetary tightening cycle. Given the massive 450 bps of hikes in under a year, perhaps the big surprise was the near absence of such cracks—at least until now. The Silicon Valley Bank’s woes may not have been directly related to the ultra-aggressive rate hikes, but they are clearly a side effect. Arriving at the same time as the implosion of crypto lender Silvergate Bank, markets wasted little time in selling first and asking questions about broader ramifications later, with financial stocks especially hit hard this week.

Stephen Brown, deputy chief North America economist, Capital Economics

Employment growth slowed sharply in February but the rise in hours worked suggests that the economy performed well last month. With the low unemployment rate putting upward pressure on wage growth, the Bank of Canada will continue to stress that it may still need to raise interest rates further.

Paul Ashworth, chief North America economist, Capital Economics

The circumstances of the Silicon Valley Bank (SVB) collapse are unique enough that it probably won’t trigger a widespread financial contagion. Nevertheless, it is a timely reminder that when the Fed is singularly focused on squeezing inflation by jacking up interest rates – it often ends up breaking things. Regardless of whether the problems show up first in the real economy, asset markets or the financial system, they can trigger an adverse feedback loop that develops into a hard landing, which takes down all of them.