Good news for Main Street was finally good news on Wall Street. Friday's jobs report showed a trifecta of improvement that ignited a big rally in the stock market, and didn't batter other asset classes either.
The government said 203,000 more jobs were created last month. That dropped the unemployment rate to a five-year low at 7%, despite an improvement in the percentage of the labor force looking for work.
Over the past few months positive data has triggered selling in stocks of fears a healthier economy will convince the Federal Reserve to begin cutting back on its financial stimulus. Longer-term debt instruments also were battered by this psychology, because the Fed would first move to stop
its program for buying $85 billion in long-dated Treasurers and mortgage backed securities.
But investors appear to be coming to grips with the end to quantitative easing, if only because the economy may be strong enough to achieve escape velocity from the lingering effects of the financial crisis without need for the Fed's booster rocket.
The central bank might begin this tapering as soon as Dec. 18, when it concludes a two-day meeting that includes a summary of economic projections and the farewell press conference by outgoing Chairman Ben Bernanke.
It's still unclear whether the Fed would move that fast. Other data remains mostly positive, but not great. Manufacturing grew solidly in November, helping boost GDP growth 3at an annualized rate of 3.6%, stronger than expected. But there was some slowdown in the service sector, with factor orders down and housing and construction also showing slower growth.
Conventional thinking once held that the Fed wouldn't move at the December meeting, for fear of dampening the crucial Christmas retail season. The arrival of a new Fed chief, Janet Yellen, might be another reason to wait until 2014.
While the market will debate the timing, the end to easing now looks inevitable, and if today's reaction was any indication, the market is ready to deal with it. Bond prices traded below September lows before trying to reverse higher, and there more talk that investors have already dialed in the end to QE into prices. The dollar firmed too. Gone, for now at least, are the days when a weaker dollar signaled a mood to take more risk. Instead, the dollar is seen as a bet on the U.S. economy.
Gold prices are nearing a test of summer lows, with nary a whiff of inflation these days. Even dollar-sensitive crude oil prices are trading their own fundamentals. That's probably a good sign.
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Senior Editor Bryce Knorr first joined Farm Futures Magazine in 1987. In addition to analyzing and writing about the commodity markets, he is a former futures introducing broker and is a registered Commodity Trading Advisor. He conducts Farm Futures exclusive surveys on acreage, production and farm management issues and is one of the analysts regularly contracted by business wire services before major USDA crop reports. Besides the Morning Call on www.FarmFutures.com he writes weekly reviews for corn, soybeans, and wheat that include selling price targets, charts and seasonal trends. His other weekly reviews on basis, energy, fertilizer and financial markets and feature price forecasts for key farm crop inputs. A journalist with 38 years of experience, he received the Master Writers Award from the American Agricultural Editors Association.
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