Hint of U.S. rate hike lowers markets

North American markets closed lower Friday, with the resource sector pulling down the TSX, as positive jobs data from south of the border suggested that the U.S. Federal Reserve is likely to raise interest rates in the fall.

The S&P/TSX composite index was down 103.21 points at 14,302.70, while the loonie lost 0.15 of a cent (U.S.) to 76.14 cents.

In New York, the Dow Jones industrial average dropped 46.37 points at 17,373.38, the Nasdaq index fell 12.90 points to 5,043.54, and the S&P 500 declined 5.99 points to 2,077.57.

Jobs figures from the nonfarm payrolls report released Friday met analyst expectations, showing that the United States gained 215,000 jobs last month. Meanwhile the unemployment rate remained at 5.3 per cent.

Scott Guitard, portfolio manager at Fiduciary Trust Canada, Franklin Templeton’s wealth management arm, says investors have been negatively reacting to positive economic news, as it increases the likelihood of a rate hike in September. Higher interest rates make it more expensive for companies to borrow money.

“As we get closer to September, every data (report) that’s released seems to be more and more important, and July’s U.S. job data was consistent with the trend the Fed wants to see before they decide to pull the trigger on the first rate hike,” Guitard said.

“The market is now putting a greater probability on the Fed raising rates in September. But today’s number was basically spot on consensus, and it’s not really spectacular enough to make a September rate hike a foregone conclusion.

“All eyes will be on August data, and unless there is a surprise to the downside, a September hike seems increasingly probable,” he added.

The U.S. economic news, combined with ongoing weakness in the resource sector and Canadian jobs data, weighed on the Toronto stock market Friday.

Although Canada gained 6,600 jobs in July, leaving the unemployment rate steady at 6.8 per cent, Guitard said full-time jobs in the private sector were replaced by part-time jobs and self employment.

“The concern is those private sector numbers are clearly showing that confidence is low, and there will likely be a reduction in investment and employment,” Guitard said.

On the commodity markets, the December gold contract rose $4 to $1,094.10 an ounce, the September crude oil contract lost 79 cents at $43.87 a barrel and the September contract for natural gas was down 1.5 cents at $2.798.

The base metals sector of the TSX was the biggest decliner, slipping 2.7 per cent, while metals and mining lost two per cent and energy lost 1.9 per cent.