TSX, U.S. Indices Rally as Divergent Jobs Data Reshapes Rate Bets

TSX Gains 244 Points After Canada Adds 75,000 Jobs, U.S. Payrolls Contract

Canada's labour market delivered a stunning surprise on Friday, with Statistics Canada reporting the economy added 75,000 jobs in July — five times the 15,000 gain that Bay Street had expected. The unemployment rate edged down to 6.4%, signalling that the domestic recovery is gathering momentum. The S&P/TSX composite index jumped 244.92 points (0.68%) to close at 36,381.23, led by basic materials stocks as gold prices soared.

Across the border, the picture was starkly different. The U.S. government said employers unexpectedly cut 23,000 jobs last month, and it slashed a combined 103,000 jobs from the already reported figures for May and June. The weak U.S. data immediately reduced the odds of another interest rate hike by the Federal Reserve, which helped lift all three major U.S. indexes — the Dow rose 151.83 points, the S&P 500 added 47.68 points, and the Nasdaq surged 342.26 points.

Gold benefited from the shifting rate outlook, with the December contract climbing US$100.10 to US$4,399.70 an ounce. Oil prices also edged higher, with U.S. benchmark West Texas Intermediate up 89 cents to US$78.18 per barrel, as geopolitical tensions around the U.S. conflict with Iran continued to influence the market. The Canadian dollar strengthened to 71.72 cents US from 71.34 cents US.

How Contradictory North American Labour Data Are Reshaping Rate Expectations

A Tale of Two Labour Markets

The simultaneous release of Canadian and U.S. jobs data painted sharply contrasting pictures. Canada's blowout 75,000-job gain suggests resilient domestic demand, while the unexpected drop in U.S. payrolls and massive downward revisions signal an American economy that is losing steam faster than anticipated. This divergence is forcing investors to reprice their expectations for the central banks on both sides of the border.

Why Canada's Job Gains Don't Yet Shift the BoC's Stance

Despite the muscular employment report, financial markets see almost no chance of a Bank of Canada rate move at its next meeting on September 2 — odds of a hold stood at 96% following the data. Allan Small of iA Private Wealth noted that while the strong jobs number would normally argue for tightening, headline inflation remains above target even though core inflation is right at target. "I think the Bank of Canada just stands … it doesn't do anything," he said. The central bank appears trapped between an improving labour market and still-sticky inflation, leaving rates on hold for now.

Gold's Rally and the Disappearing U.S. Rate Hike

The U.S. employment miss eliminated any remaining speculation of a near-term rate increase. The weak number and the substantial downward revisions turned the conversation from "will the Fed hike?" to "is the Fed done tightening?" Gold, which struggles when higher rates lift bond yields, surged more than US$100 as the rate-hike narrative evaporated. Small captured the shift: "Now everybody's saying 'Gold is back on.'"

Equity Markets Cheer Lower-for-Longer Rates

Stock markets on both sides of the border rallied on the view that central banks are unlikely to tighten further. Canadian equities were also buoyed by the basic materials sector, which tracks metal and mining stocks. The risk, however, is that oil's ongoing climb — tied to the U.S. war with Iran — could eventually rekindle inflation fears, complicating the outlook for both the Fed and the Bank of Canada.

What Investors Should Watch After a Jobs Report That Caught Markets Off Guard

• The Bank of Canada's Sept. 2 decision is virtually a lock to hold; investors should watch for any language shift that hints at future cuts if inflation softens. The jobs surprise reinforces the view that easing may be further off than some had hoped.
• Gold's US$100 spike to near US$4,400 per ounce reflects both safe-haven demand and lower rate expectations. The TSX basic materials sector's leadership suggests gold miners could remain in focus if geopolitical tensions and rate uncertainty persist.
• Oil's rise, driven by the U.S.-Iran conflict, adds an inflation wildcard. If crude stays elevated, it could test the no-hike thesis and weigh on rate-sensitive sectors.
• U.S. equities got a lift from the vanishing rate-hike fear, but the sharp revisions to previous payrolls suggest the labour market is on a weaker trajectory than believed. Pay attention to upcoming consumer spending and retail sales data for further evidence of slowdown.