It was a mixed picture in the U.S. stock market in the wake of some encouraging jobs data. Interest rates rallied, which means bonds tumbled.
First, the scoreboard:
- Dow: 16,462.7 (-68.2, -0.4%)
- S&P 500: 1,837.4 (-0.3, -0.0%)
- Nasdaq: 4,165.6 (+12.4, +0.3%)
And now the top stories:
- According to ADP, U.S. companies added 238,000 private payrolls in December. This was much stronger than the 200,000 expected by economists. The services and construction industries led gains. This caused economists across Wall Street to raise their odds that this Friday's jobs report will exceed their expectations. Deutsche Bank's Joe LaVorgna has already raised his forecast for Friday's report to +250,000 from +200,000.
- Encouraging economic data appears to have people thinking that less-easy and tighter monetary policy is coming sooner than later. The bond market sell-off sent the 10-year Treasury note yield from 2.94% to 3.01% before it came back down to 2.99%. The 5-year yield surged from 1.68% to 1.77%.
- At 2:00 p.m. ET, the Federal Reserve published the minutes from its December Federal Open Market Committee meeting, which was when the Fed announced it would be tapering its stimulative large-scale bond-buying program. From the minutes: "In their discussion of monetary policy in the period ahead, most members agreed that the cumulative improvement in labor market conditions and the likelihood that the improvement would be sustained indicated that the Committee could appropriately begin to slow the pace of its asset purchases at this meeting."
- Recognizing that the decision to taper stimulus could be seen as tightening, the Fed members had a lengthy discussion about how to offset any unintended hawkish interpretations. Specifically, they talked about adjusting the Fed's current 6.5% unemployment rate and 2.5% inflation rate thresholds, which are currently used to guide monetary policy. From the minutes: "...a few members suggested that lowering the unemployment threshold to 6 percent could effectively convey the Committee's intention to keep the target federal funds rate low for an extended period. However, most members wanted to make no change to the threshold and instead preferred to provide qualitative guidance to clarify that a range of labor market indicators would be used when assessing the appropriate stance of policy once the threshold had been crossed. A number of members thought that the forward guidance should emphasize the importance of inflation as a factor in their decisions. Accordingly, almost all members agreed to add language indicating the Committee's anticipation, based on its current assessment of additional measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial developments, that it would be appropriate to maintain the current target range for the federal funds rate well past the time that the unemployment rate declines below 6-1/2 percent, especially if projected inflation continues to run below the Committee's longer-run objective."
- "In one line: Better labor data, fewer disinflation fears and diminishing marginal QE benefits triggered the taper," said Pantheon Macroeconomics' Ian Shepherdson.
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