Afternoon Markets Brief – 12/6/19

Summary and Price Action Rundown

The S&P 500 posted a strong rally today to end a mixed week of trading on a positive note after US nonfarm payrolls for November registered a significant upside surprise. US equities nearly recaptured last Wednesday’s record high after better-than-expected labor market data brightened investors’ growth outlook. Asian and EU stocks also advanced overnight. Yields on Treasuries increased only moderately, however, with the 10-year yield at 1.84%, with the dollar receiving a similarly gentle boost. Oil prices touched their highest level since September, above $64 per barrel, as OPEC announced deeper production cuts after its meeting.

Impressive US Jobs Data Boosts Risk Appetite

After a series of uneven global growth data this week, today’s resoundingly strong US economic figures buoyed equities but drew only a modest response from Treasuries and the dollar. November nonfarm payrolls of 266k handily beat expectations of 180k, wrongfooting traders who had taken the weak ADP jobs data earlier this week as a leading indicator. This was the largest advance in payrolls since January, with notable job gains occurring in healthcare and in professional and technical services. Manufacturing also rose by 54k as the UAW strike at GM ended. The unemployment rate decreased 0.1 percentage point to 3.5%, bettering expectations of 3.6%. This is the lowest jobless rate since 1969. Average hourly earnings rose by 7 cents to $28.29 or 3.1% year-over-year. Also, the University of Michigan’s gauge of consumer sentiment increased to 99.2 in December from 96.8 in November, easily beating market expectations of 97. This is the highest reading since May as both current conditions and future expectations improved. US equities jumped on the upbeat figures, though Treasury yields and the dollar retraced much of their initial upside reaction.

OPEC Tightens Production Curbs to Support Oil Prices

Crude prices moved to the top of their six-month trading range as this week’s annual gathering of cartel members and their allies yielded a modestly deeper reduction of output. After no consensus was reached yesterday, OPEC announced additional production curbs totaling 500k barrels per day this morning. Reports also indicate that the newly minted Saudi Oil Minister, Prince Abdulaziz bin Salman, pressed other delegates to tighten their adherence to agreed quotas due to noncompliance by Iraq and other member states. Although analysts are generally underwhelmed by the additional cuts, oil prices have posted solid gains this week. For context, international benchmark Brent crude oil has traded between $55 and $65 per barrel since early June, with only a fleeting spike over $70 following the September attacks on Saudi oil plants. Also, the IPO of Saudi oil giant Aramco raised $25.6 billion yesterday, making it the largest IPO ever despite questions over valuation.

Additional Themes

Positive Developments on US-China Trade – After signals earlier this week that the White House may again be reverting to a more hardline stance on trade policy, the more upbeat tone of communications over the past three days have spurred a predictable rally. This morning, investors noted news that Beijing is lifting some tariffs on US farm products, including pork and soy, which is being seen as a concessionary gesture.

Looking Ahead – Next week’s calendar features meetings by the Federal Reserve and European Central Bank, but analysts are expecting no action. Global manufacturing data and US retail sales are also on the calendar.

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