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Premarket: Wall Street set for big rally after strong jobs report

U.S. stock futures are rallying this morning, and extended their gains after the U.S. released stronger-than-expected jobs figures for June. The upbeat reading on the American job market sent the U.S. 10-year Treasury yield surging to a fresh 23-month high of 2.70 per cent.

The U.S. dollar also rose in the wake of the jobs numbers, which sent the loonie tumbling to its lowest level in nearly three years.

Well before the 830 a.m. (ET) jobs reports, it was shaping up to be a day of strong gains on Wall Street. U.S. markets were closed Thursday for the Fourth of July holiday and futures trading had a shortened session. As such, they didn't have much time to react to the clear signals sent from European central banks Thursday that monetary policy will stay loose and aggressive in providing extra economic stimulus.

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Both the Bank of England and the European Central Bank carved out positions in their press conferences that suggest they would try to counteract any tightening of policy or tapering of bond-buying stimulus measures by the U.S. Federal Reserve. The dovish comments Thursday sent European shares skyrocketing, although the buying enthusiasm didn't catch on at the TSX, with stocks largely flat for the day.

Stock futures in Canada suggest gains here today will be much more subdued than on Wall Street. The strong greenback is sparking a selloff in most commodities, a negative for the resource-heavy TSX index. And the big jump in bond yields is likely to significantly dent buying interest in income-producing securities, including dividend stocks, real estate investment trusts and bonds.

The Fed has closely linked the possible tapering of bond purchases - or quantitative easing - to the nation's jobs recovery. As such, the U.S. jobs report will be scrutinized for signals. The stronger-than-expected job gains may send a worrisome signal that the Fed may taper its $85-billion (U.S.) bond buying program in the near future - but the unemployment rate actually held steady as more people entered the workforce, which may offset some of these concerns.

The strong U.S. dollar this morning has metal prices under pressure. But crude oil prices are on the rise amid reports that Egypt's army has announced a state of emergency in the provinces of South Sinai and Suez after Islamist gunmen attacted an airport in the Sinai town of El Arish. The Suez canal connects the Mediterranean and the Red seas and is an important shipment route for crude - although there are also reports this morning that the Suez Canal shipping traffic has not been affected by the latest developments.

Now, here's a closer look at what's going on this morning and what's to come.

MARKETS:

Equities:

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Futures: S&P 500 +1.1 per cent; Dow +1.4 per cent; Nasdaq +1.1 per cent; TSX Toronto +0.03 per cent

Hong Kong's Hang Seng +1.89 per cent

Shanghai composite index +0.04 per cent

Japan's Nikkei +2.08 per cent

London's FTSE 100 +0.27 per cent

Germany's DAX -0.28 per cent

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France's CAC 40 -0.27 per cent

Commodities:

WTI crude oil (Nymex Aug) +0.70 per cent at $101.95 (U.S.) a barrel

Gold (Comex Aug) -2.20 per cent at $1,224.40 (U.S.) an ounce

Silver (Comex Sep) -3.43 per cent at $19.03 (U.S.) an ounce.

Copper (Comex Sep) -3.09 per cent at $3.08 (U.S.) a pound

Currencies:

Canadian dollar down 0.0054, or 0.57 per cent, at $0.9453 (U.S.)

U.S. dollar index up 0.76 at 84.00

Bonds:

U.S. 10-year Treasury yield 2.66 per cent, up 0.19

Canada 10-year government bond yield 2.45 per cent, up 0.03

ECONOMIC INDICATORS TO WATCH:

The U.S. Labour Department said nonfarm payrolls increassed 195,000 in June, surpassing the 165,000 that economists had expected. The unemployment rate stayed at 7.6 per cent, compared to expectations for it to fall to 7.5 per cent. U.S. payroll gains in May were revised up to 195,000 from 175,000.

Canada lost 400 net jobs in June from May, as the jobless rate stayed at 7.1 per cent. Economists were looking for a loss of 5,000 jobs.

STOCKS TO WATCH:

Real estate investment trusts and dividend-producing stocks are likely to see selling pressure as 10-year U.S. bond yields jump to nearly two-year highs.

The Cash Store Financial Services Inc. says a class-action proceeding has been filed in the United States against the company and certain of its current and former officers.

THIS MORNING'S TOP INVESTING READS ON THE WEB:

Warren Buffett is more myth than legend.

Why dividends don't keep pace with GDP.

The hidden danger of being risk-averse.

The value of real-return bonds in a diversified portfolio.

Why mutual fund investors really only need to own one balanced

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The premarket report is constantly updated to reflect the latest news developments and market moves. For instant headlines on breaking economic and corporate news in the premarket, follow Darcy Keith on Twitter at @eyeonequities. You can also be notified using our dashboard feature when new articles appear from this author. Read more on using this feature here.

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About the Author
Investment Editor

Darcy Keith is The Globe and Mail's Investment Editor. He has been a business journalist since 1992 and joined the Report on Business in 2010 from Yahoo! Canada, where he was the senior editor of finance. More

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