Markets advance, strong U.S. jobs data competes with Fed tapering concerns

TORONTO – North American stock markets closed sharply higher Friday as a stronger than expected U.S. employment report trumped worries that the Federal Reserve might start to cut back on stimulus sooner than expected.

The S&P/TSX composite index ran up 80.32 points to 13,280.72 after the U.S. Labor Department reported that 203,000 jobs were created during November, on top of a revised 200,000 in October, while the jobless rate fell 0.3 of a point to seven per cent. Economists had expected a gain of around 180,000.

The Dow Jones industrials surged 198.69 points to 16,020.2, the Nasdaq rose 29.36 points to 4,062.52 while the S&P 500 index climbed 20.06 points to 1,805.09.

“The yin and the yang of it is, on the one hand, great numbers, great reports, but on the other hand, is this bringing on the day of tapering sooner rather than later?” said John Stephenson, a portfolio manager at First Asset Funds Inc.

“So, for today, it’s a happy day. Monday might be a different story.”

The Canadian dollar slipped 0.14 of a cent to 93.84 cents US amid strong Canadian job numbers. Statistics Canada reported that the economy added 21,600 jobs during November, almost double the number that had been expected. The jobless rate held steady at 6.9 per cent.

The loonie had initially dropped as low as 93.39 cents US as the greenback advanced and bond yields rose after the release of the U.S. job numbers.

Markets have been braced for the Fed to cut back on its US$85 billion of monthly bond purchases but hopes have been high that the Fed wouldn’t move until at least March, when incoming chair Janet Yellen is settled in the job and the central bank would be more confident about steady improvement. But the string of positive data has raised concerns the central bank could act as soon its next meeting on Dec. 18.

The asset purchases have supported a strong stock market rally.

The benchmark 10-year U.S. Treasury moved up to 2.91 per cent in the wake of the report, but later backed off to 2.86 per cent by late afternoon.

The solid American jobs number added to other data that came out this week showing an improving economy, including strong manufacturing and housing reports, better than expected third quarter economic growth and improving consumer confidence.

The financial sector led advancers, as traders also took in the final earnings report from the big banks. Scotiabank (TSX:BNS) posted quarterly net income of $1.7 billion, up 12 per cent from a year ago. Scotiabank also says it earned $1.30 per share of net income in the fourth quarter, up from $1.18 a year earlier. Core earnings per share came in at $1.31 a share, a penny short of expectations. The shares erased early gains to rise 66 to $63.98.

Other bank stocks turned higher after registering losses during the week as traders absorbed a mixed bag of earnings from a sector that had soared as high as 22 per cent year to date. Bank of Montreal (TSX:BMO) rose $1.22 to $70.47 and Royal Bank (TSX:RY) was up 88 cents to $69.05.

The industrials sector also advanced and Canadian Pacific Railway (TSX:CP) improved by $2.92 to $164.26 and Canadian National Railways (TSX:CNR) gained 78 cents to $60.21.

Base metal stocks ran up while March copper gained two cents to US$3.25. First Quantum Minerals (TSX:FM) climbed 18 cents to C$17.20.

The gold sector finished the session flat while February bullion lost $2.90 to US$1,229 an ounce. Goldcorp (TSX:G) climbed 30 cents to C$22.44.

The TSX finished the session off the highs of the day as energy stocks moved further into the negative column.

The energy sector was down as the January crude contract on the New York Mercantile Exchange gained 27 cents to US$97.65 a barrel. Suncor Energy (TSX:SU) fell 54 cents to C$35.73.

Consumer staples also registered losses with grocer Loblaw Cos. Ltd. (TSX:L) off 85 cents to $43.04.

The TSX and the Dow both finished last week in the red, with the Toronto market off 0.86 per cent and the Dow down 0.41 per cent. But gains from earlier in the autumn are still largely intact with the TSX up seven per cent year to date and the Dow ahead 22 per cent.