Stocks Climb as December Jobs Gains Surprise Ahead of Key Powell Speech on Rates
TheStreet

The Friday Market Minute

  • Global stocks steady as investors cheer news of U.S.-China trade talks next week that could signal progress in the damaging dispute between the world's two biggest economies.
  • European stocks open firmly higher, led by auto and basic resource stocks, as trade war progress tempts bulls into beaten-down markets.
  • Bond yields hold at multi-month lows ahead of December U.S. jobs report, with 2-year notes trading below Fed Funds rate for the first time since 2008.
  • U.S. stocks set to open modestly higher, following last night's 600 point plunge for the Dow, with the average poised for a 290-point opening bell gain.

Market Snapshot

Global booked solid gains Friday, with planned trade talks between Washington and Beijing, a cut in  a key China bank lending rate and a stronger-than-expected U.S. jobs report acting as a catalyst for a rebound in risk sentiment as investors prep for what could be a game-changing speech from Federal Reserve Chairman Jerome Powell.
U.S. employers added 312,000 new jobs last month, the Labor Department said Friday, nearly double the Street consensus of 177,000 and well up on last night's revised 176,000 reading. Average hourly wages also rose, to an annual rate of 3.2%, while the headline unemployment rate bumped higher, to 3.9%
"The strong December jobs report is a net positive for stocks because investors' biggest concern has been slowing growth," said FTSE Russell managing director for global markets Alec Young. "December's strong job gains help ease that concern even if 3.2% year-over-year wage growth makes it more difficult to assume the Fed is done raising interest rates. It's hard to square recession worries with the strongest job growth we've seen in years."
China's Commerce Ministry said Friday that Deputy U.S. Trade Representative Jeffrey Gerrish will visit Beijing next week for two days of high-level trade talks as the damaging dispute continues to take its toll on the world's two biggest economies, both of which recorded notable manufacturing slowdowns at the close of last year.
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News of the talks, as well as a modest retrenchment for the yen and signals of further monetary and fiscal stimulus for the Chinese economy from Beijing, supported regional stocks and risk sentiment in the Asia session, although Japan's Nikkei 225 slumped 2.26% to close under the 20,000 point threshold as investors return from the traditional early January holidays.
That was followed at the close of trading by a decision from China's central bank to reduce the ratio of cash to loans that domestic lenders need to hold on their balance sheets, a move that will add around $220 billion to the nation's financial system as officials attempt to re-ignite growth in the world's second-largest economy.
U.S. equity futures booked modest gains on the news, following last night's 600 point plunge for the Dow Jones Industrial Average that was triggered by the first revenue warning in 12 years from tech giant Apple Inc. (AAPL) and the biggest monthly decline in the ISM Manufacturing index since the global financial crisis. 
Contracts tied to the Dow indicate a 288 point gain for the 30-stock average while those linked to the S&P 500 suggest a 34 point advance for the broader benchmark. Nasdaq Composite futures are indicating an 116 point gain for the tech-focused index, which closed in bear market territory last night after falling 3.04% on the session.
European stocks found support at the start of trading Friday, as well, with 1.5% gain for the Stoxx 600 benchmark and similar percentage advances for bourses around the region, including a 1.6% rise for the DAX performance index in Germany. 
Fed Chair Powell is slated to speak Friday, alongside former Fed Chairs Janet Yellen and Ben Bernanke, at the American Economic Association and Allied Science Association Meeting in Atlanta, just hours after the Labor Department will publish non-farm payroll data for the month of December.
Should Powell hold a hawkish tone, supported by firmer wage growth and stronger-than-expected job creation data based on a firmer ADP reading of private sector employment Thursday, dollar bulls -- and the potential policy response from central banks around the world -- will form the central plank for market direction in the weeks ahead.
Bond markets, however, are not only suggesting the Fed will not execute its planned 2019 hikes, they're pricing in a 40% chance of a rate cut between now and the end of the year, according to Fed Funds futures prices.  Alongside that shift, benchmark 2-year Treasury note yields slipped to 2.37% last night, trading below the top end of the Fed Funds rate of 2.5% for the first time since 2008.
Global oil prices were also trading modestly higher in early European dealing, with support from both the stronger session for Asian equities as well as a Reuters survey that suggested OPEC member supply fell by 460,000 barrels per day in the final two months of last year to around 32.68 million as the cartel prepared for the planned 1.2 million barrel per day production cuts that hit the market earlier this week.
Brent crude contracts for February delivery, the global benchmark, were marked $1.10 higher from their Wednesday close in New York and changing hands at $57.05 per barrel while WTI contracts for the same month were marked 85 cents higher at $47.94 per barrel.