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Week In Review: Dec 5th to Dec 8th

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US NFP beats estimates

According to figures released by the US Bureau of Labor Statistics on Friday, nonfarm payrolls increased in the US by 263,000 in November. This reading was far higher than the 200,000 market expectation. The reading for October was increased from 261,000 to 284,000.

More information about the publication showed that the unemployment rate remained at 3.7% and that annual wage inflation, as measured by average hourly earnings, increased to 5.1% from 4.9% in October. Finally, the Labor Force Participation Rate decreased slightly from 62.2% to 62.1%.

RBA to raise rates by 25bps

On Tuesday, the Reserve Bank of Australia (RBA) will announce its rate decision.  There are doubts as to whether the RBA will increase rates by 25bps or leave them unchanged. The board stated at the most recent meeting that excessive inflation will necessitate additional rate increases. In addition, it stated that this year’s inflation peak is expected to be approximately 8%, up from the prior prediction of 7.75%.

Australia’s first monthly CPI report was published last week (previously it was only issues CPI on a quarterly basis). The Consumer Price Index declined to 6.9% YoY in October, below the forecast of 7.4% YoY and the data from September of 7.3% YoY. Lower food prices were the primary cause of the miss.

Was this decrease in inflation significant enough for them to stop its rate hikes? The Committee promised to take any necessary steps to reduce inflation, but 6.9% still appears too high for them to put a stop to the cycle of rate hikes.

Will BOC lift rates by 25bps or 50bps?

Bank of Canada and RBA have a something in common. Markets are divided on whether the central bank will raise rates by 25 basis points (bps) or by 50 bps. At its most recent meeting, the BOC shocked the markets by increasing rates just by 50 basis points, instead of the anticipated 75 basis points, bringing its overnight rate to 3.75%. The employment report released last Friday was nonetheless positive, revealing that 10,100 new jobs were created in Canada during November. (Remember that the reading for October was +108,300!) However, there were 50,700 more full-time jobs created in November compared to -40,600 fewer part-time positions plus the Unemployment rate fell from 5.3% to 5.1%.

The Committee also stated in its most recent meeting that further rate increases would be required since its preferred inflation gauge which is Core Inflation remained far too high. In contrast to expectations of 5.6% YoY and a September reading of 6% YoY, the Core CPI for October came in at 5.8% YoY.

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