North American stock markets were higher in early trading, as a surprisingly strong jobs report in the U.S. ignited optimism that the world's largest economy was finally pulling itself out of its labour woes. A big drop in a U.S. consumer sentiment indicator, however, took some shine off the report.
The loonie jolted higher this morning as Canadians were also treated to a better-than-expected reading on the employment picture on this side of the border.
At 1020 a.m. (ET), the S&P/TSX index was up 13 points, or 0.1 per cent, at 12,164; the S&P 500 was up 4 points, or 0.3 per cent, at 1,418; and the Dow Jones industrial average was up 51 points, or 0.4 per cent, at 13,126.
Commodities were modestly higher, with oil up 18 cents at $86.44 (U.S.) and gold up $1.20 at $1,703. The loonie was up four-tenths of a cent to 1.0121 per U.S.
European markets and U.S. stock futures were slightly negative prior to the jobs reports, weighed down by continued worries about the looming "fiscal cliff" deadline.
But they quickly reversed course as the American non-farm payrolls report showed 146,000 new jobs last month. That was much better than economists' expectations for 85,000 new jobs. The unemployment rate fell to 7.7 per cent, the lowest in almost four years, compared to expectations for 7.9 per cent.
Economists were bracing for a much less rosy jobs report on the assumption that Hurricane Sandy would have crippled businesses during the month. But there were few indications of this in the report. However, the U.S. Labor Department did revise previously released numbers, saying that employers added 49,000 fewer jobs in October and September than initially estimated.
A weak reading on U.S. consumer sentiment was working against bulls. The preliminary University of Michigan index fell to 74.5 from 82.7 in November. That was far below the 83 figure that economists were looking for, and represented the biggest one-month drop since March 2011. It was one of the more prominent signals yet that the "fiscal cliff" jitters were taking their toll.
China was a bright spot for world markets overnight. The Shanghai composite index rallied 1.61 per cent, bringing this week's gains to 4.1 per cent. That's the biggest weekly advance for that index since October 2011.
China has released a series of economic reports in recent weeks that are indicating the economy is starting to pick up steam. There have also been signs that China's new leadership, under Xi Jinping, will take measures to avoid a bigger slowdown, including new public works spending.
This weekend brings more data out of China, and traders are hedging their bets the figures will continue to indicate an acceleration in growth. Industrial production is forecast to rise to 9.8 per cent from a year ago, with retail sales seen jumping 14.6 per cent, the strongest level since March.
There's clearly some bargain hunting going on as well. Chinese stocks significantly underperformed global markets last month and, at the start of this week, had been down about 10 per cent from the start of the year.
Elsewhere this morning, there was more discouraging news out of Europe, where Germany's Bundesbank slashed its outlook for economic growth. It now projects gross domestic product of just 0.4 per cent next year. Figures were released in Greece showing its economy shrank 6.9 per cent in the third quarter from a year earlier. While a dismal number, it was better than the 7.2-per-cent drop estimated in November.
The U.S. jobs report this morning is serving as a momentary distraction from the ongoing negotiations aimed at avoiding the more than $600-billion in tax increases and spending cuts set to take hold at the end of this year. There continues to be little progress in those talks.
There wasn't a lot of fresh corporate news this morning. But Bank of Nova Scotia reported fourth-quarter adjusted profit of $1.21 a share, beating forecasts for $1.19 a share, as revenues rose 15 per cent. Shares are up nearly 1 per cent in early trading.