US Treasuries could come under pressure next week as investors position for a December jobs report that looks like it may beat expectations following Friday's stunning improvement at factories across the country.
The Institute for Supply Management reported the biggest upswing in the US manufacturing in 20 years, roundly outstripping expectations for a pull-back.
The ISM's employment index rose above 50, signalling job creation, for the second month in a row.
The index had sat below this level for 37 straight months, so December's reading suggests the current economic growth spurt may be trickling into the labour market, especially as the manufacturing sector was one of the hardest hit by the downturn.
This could lead economists to crank up forecasts for the Labour Department's report on December employment, next week's big number for financial markets.
"I think the odds are favouring a blow-out employment report either next Friday or the month following.
All of the signs are here," said Tony Crescenzi, chief bond market strategist at Miller, Tabak & Co.
"Whatever the number is, the main point is the market is expecting a strong figure," he said.
Yields on the benchmark 10-year Treasury note hit a three-week high on Friday of 4.397 percent, and analysts said even a weak payrolls report would be unlikely to be viewed as anything other than a blip in the recovery process.
"The employment index at 55.5 is indicative of a very healthy payroll gain in December. We haven't moved our (non-farm payroll) number yet but certainly it risks to even a 130,000 number like ours to the upside," said Peter Kretzmer, senior economist at Banc of America Securities.
The Labour Department will release its December employment report at 8.30 am on Friday.
Economists polled by Reuters expect to see non-farm payrolls rise by 125,000, up again after November's rise of 57,000, while the unemployment rate should hold steady at 5.9 percent.
But Miller Tabak's Crescenzi said non-farm payrolls could come in above 200,000, based on the rise in the ISM employment index.
Other data next week include domestic car and truck sales on Monday, which is unlikely to rattle a bond market fixated on Friday's jobs report.
Tuesday ushers in a raft of figures, including service sector activity, factory orders and planned layoffs at US companies.
The ISM's reading of service sector activity for December is released at 10.00 am, and is forecast to rise to 61.0, after reaching 60.1 the previous month.
The US census bureau releases November factory orders, which include orders for all types of manufactured products, and will also give a revised reading of November durable goods orders.
Factory orders rose by 2.2 percent in October. Figures will be available from 10.00 am.
Also at 10.00 am on Tuesday, job placement firm Challenger, Gray and Christmas releases its report on planned layoffs at US firms in December. Last month the report showed companies planned 99,452 redundancies.
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