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US Payrolls Growth Highest Since January 2012

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Today's financial recap and tomorrow's financial outlook.

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The main driver of asset prices today was the US nonfarm payrolls report. Payrolls growth was 321K in November, which was better than the 230K expected, and October's report was revised up by 29K to 243K. However, because the household survey was weak and the current month's report appeared to have a very strong upward seasonal adjustment, that dampened some of the enthusiasm.

The response by market participants was to price in an earlier tightening of monetary policy. The 2yr Treasury yield rose by 10bps to 0.64%, and the 3yr was the worst performer with the yield rising 12bps. Long-term yields jumped much less - the 10yr yield rose 7bps - as slow global growth remains a concern. The first rate hike was moved up from the December 2015 meeting to September, with the potential for June.

The US dollar reversed its losses yesterday from the ECB meeting. The dollar was up 0.71% for today's session. This weighed on commodities as gold and silver fell more than 1% and oil was down 1.69%.

US equities retained some strength today as the larger cap companies took over the leadership. The small cap Russell 2000 (RUT) continued to outperform, but it ran into technical triple top resistance that has prevented it from matching gains seen in the S&P 500 (SPX) all year. The top performing sector today was financials. Investors bought bank stocks because higher interest rates now and in the future were viewed as supportive of higher interest income. The sector rose 0.99%. On the other side of the spectrum, energy and utilities stocks were the worst performers because of the lower commodity prices and higher interest rates.

European equities were strong and eclipsed all of yesterday's post-ECB losses. Preliminary third quarter eurozone GDP was even with expectations, growing 0.2% from the prior quarter and a 0.8% annual pace. However, the German Bundesbank lowered its economic outlook for 2015 in line with yesterday's downgrade by the ECB.

Monday's Financial Outlook

On Monday there are no major economic reports scheduled. The Fed will release its Labor Market Conditions Index, which it now does on a monthly basis. The economic data calendar next week is fairly barren, as is typical after a payrolls report. Atlanta Fed President Dennis Lockhart will give a speech in the early afternoon on monetary policy. He will be the last FOMC speaker as the members will go into a blackout before the policy meeting on December 17.

For Monday, there are a number of global economic reports, but none that should be terribly market moving. The final third quarter reading of Japanese GDP will be released Sunday night with a minor upward revision expected. Recall that the preliminary reading was substantially lower than economists had expected. Also scheduled are German industrial production, Canada's new housing starts, and a report on eurozone investor confidence.

There are no major earnings reports scheduled for Monday. Two major energy conferences are scheduled to begin on Tuesday, however.

Twitter: @Minyanville

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No positions in stocks mentioned.

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