U.S. stocks plunged, the dollar rallied, Treasury bonds prices plummeted and gold sold off Friday morning, following an unexpectedly strong U.S. employment report for October.
BETTER THAN EXPECTED
The U.S. economy added 204,000 new jobs during October, versus pre-report expectations for a 120,000 increase. The unemployment rate stood at 7.3%, versus forecasts for a bump up to 7.4%. Significantly, previous months were revised higher—the September payrolls number was now seen at a 163,000 gain versus previous a 148,000 figure.
FED TAPERING
The news shifts trader’s perceptions on when the U.S. Federal Reserve might start trimming back on its monthly $85 billion per month bond buying program. Previously, many analysts had pointed to the first quarter as a likely timetable for “tapering” to begin.
Friday’s jobs data could shift tapering expectations to the December Federal Open Market Committee (FOMC) meeting. Most Fed watchers expect the tapering to begin with a $10-20 billion cut per month in the Fed’s asset purchases.
For traders, it is always an important reminder that Fed tapering is not “tightening.” Also, if the Fed chooses to scale back on its monthly asset purchases it suggests the central bank is confident the U.S. economy is on a sustainable recovery track.
