Stocks seen higher, focus shifts to payrolls

Economists expect 182,000 employment gains, a total that Barclays Capital says would be enough to allay Fed concerns and raise the odds of Fed action.

Furthermore, the U.S. unemployment rate slumped from 5.1% in September, to 5.0% in October. Worker pay increased 2.5 percent over the 12 months ended in October, the most in more than six years, following a 2.3 percent gain the prior month.

“We’ve been waiting a while to see wages start to pick up”, Curt Long, chief economist at the National Association of Federal Credit Unions, told Barron’s. Since August, drillers nationwide have taken almost 100 oil rigs offline, providing further signals that production is about to fall sharply. However, she added: “We do have a recovering economy where employment is going up, income is going up” and individuals were in a better position to form households.

Solid growth in the number of United States jobs last month greatly boosts the case for a December interest rate increase by the Federal Reserve, where policymakers have begun to worry the economy might eventually overheat without higher borrowing costs.

Another top Fed official said on Wednesday that a policy meeting set for December 15-16 is a “live possibility” for raising US interest rates for the first time in almost a decade.

Benchmark ten-year Treasury yields rose to a seven-week high on Wednesday to 2.24 percent following the announcement.

The gap between US and German two-year bond yields spread to its widest levels in nine years, emphasising the diverging outlook for policy on either side of the Atlantic.

Thomas Simons of Jefferies wrote to clients of the Fed, “Barring a complete disaster in November [payrolls], they are on track” for December liftoff. “Anything above 150,000 jobs would be regarded as reasonably positive and anything above 200,00 would be absolutely stellar”. Heading into Friday’s jobs report, a rate rise next month is “fast being ‘priced-in'”.

While the government’s monthly jobs report is always important to investors, there is additional focus on this month’s report. For the full year, October only puts job growth back on trend, but doesn’t really point to a strong acceleration. Stocks have recovered almost all their losses from the summer, financial markets have calmed in China and elsewhere, and the us economy continues to slowly improve.

“All of this pressure has been due to the increasing expectations for the Fed to move in December”, said David Meger, director of metals trading for Vision Financial Markets in Chicago.