Investors will have to make it through another week of the “will they, won’t they taper this month”-guessing game before US Federal Reserve policymakers next meet on December 17-18.
Clues might come on Monday when Richmond Fed Bank President Jeffrey Lacker speaks at the economic outlook conference in Charlotte; St Louis Fed Bank President James Bullard talks on the economy in St Louis; and Dallas Fed Bank President Richard Fisher speaks on banking trends in Chicago.
Last week’s US data all pointed to better-than-expected strength in the world’s largest economy, culminating in a government jobs report on Friday that also comfortably exceeded expectations.
The unemployment rate dropped to 7 percent in November, the lowest in five years, while payrolls increased by 203,000, according to Friday’s Labor Department report.
“The 200,000 number hits you right between the eyes,” Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ in New York, told Bloomberg News. “That’s a number that everyone agrees the labour market is showing good-size gains, and the progress they’re making seems to be sustainable if that marker is met, which it was.”
Earlier in the week, reports had shown that the American economy grew faster than initially estimated during the third quarter, expanding at a 3.6 percent annual rate, while weekly jobless claims unexpectedly dropped, and the ADP employment report was the strongest in a year.
“We now see the bias shifting in favour of a January tapering announcement,” Millan Mulraine, senior economist at TD Securities in New York, told Reuters.
On Friday, the Dow Jones Industrial Average climbed 1.3 percent, the Standard & Poor’s 500 Index rose 1.1 percent, while the Nasdaq Composite Index gained 0.7 percent.
For the week, the Dow dropped 0.4 percent, the S&P 500 slipped 0.04 percent, while the Nasdaq edged 0.06 percent lower.
Bond fund guru Bill Gross told Bloomberg News that the pace of jobs growth last month signals there is a 50 percent chance the Fed will taper this month.
“It’s at least 50-50 now,” Pacific Investment Management’s Gross said. “There was some logic for a January starting point, but it’s clear the Fed wants out.”
Oil prices received a boost from the signs of strength in the American economy, with US crude posting gains of more than 5 percent for the week. Even so, the increasing likelihood of a potential Fed taper might weigh on commodities.
“The perversity in the market right now is good economic data makes it likely the Fed is going to pull the punch bowl sooner rather than later, and that deflates the outlook for commodities,” Addison Armstrong, senior director of market research for Tradition Energy in Stamford, Connecticut, told Reuters.
This week the latest data on the US economy will arrive in the form of the NFIB small business optimism index and wholesale trade on Tuesday; jobless claims, retail sales, import and export prices, as well as business inventories on Thursday, followed by the producer price index on Friday.
In Europe, the Stoxx 600 Index posted a 2.7 percent drop last week. The UK’s FTSE 100 shed 1.5 percent, Germany’s DAX fell 2.5 percent, and France’s CAC 40 gave up 3.9 percent.
Here investors will eye reports on Germany’s trade balance and industrial production, both due on Monday, the UK’s industrial and manufacturing production, due Tuesday, Germany’s CPI, due Wednesday, as well as euro-zone industrial production, due Thursday.