For the third day this week, a combination of solid U.S. economic data and signs of progress in Europe has enlivened the animal spirits on Wall Street.
The Dow was up 0.8% while the S&P and Nasdaq were each up about 1% in recent trading, building on the big gains earlier this week.
Early enthusiasm was tempered, however, by the guts of the U.S. jobs report: An unexpected drop in the unemployment rate to 8.6% was due mainly to a sharp drop in the workforce. "Those who exited the workforce, many of whom gave up on looking for work, outnumbered the 278,000 people who found jobs," Reuters reports, citing the Labor Departments household survey, which is separate from the payrolls data. (See: November Jobs Report: Curb Your Enthusiasm)
As with the case on Monday and Wednesday, Friday's rally was spurred by hopes for progress (some progress, any progress) in dealing with Europe's sovereign debt/banking crisis. Specifically, reports the ECB will lend up to 200 billion euros (around $270 billion) to the IMF in order to aid its ability to assist struggling nations.
Although 200 billion euros alone is not nearly enough to address the crisis, the euro rallied and sovereign debt yields came down sharply Friday on hopes the ECB is (finally) getting off the sidelines and taking action to address the problems. (See: Euro Euphoria: Stocks Surge on Latest Bailout Plans, Proposals and Rumors)
Friday's news and Wednesday coordinated central bank action set the stage and raise the stakes for next Friday's EU summit meeting in Brussels. For now, traders seem to be buying the "rumor" the Europeans will adopt stricter budgets and tighter fiscal unity, something Germany's Angela Merkel and France's Nicolas Sarkozy have been agitating for this week.
"We are going to Brussels with the goal of achieving treaty change," Merkel said Friday, echoing comments made the prior day by Sarkozy.
"There can be no common currency without economic convergence, without which the euro will be too strong for some, too weak for others, and the eurozone will break up," Sarkozy said in a speech Thursday. He also talked about "more discipline" for the EU and advocated "refounding and rethinking the organization of Europe."
At the end of the day (certainly by the end of next week), the key question is whether EU members are prepared to sacrifice their sovereignty for the "greater good" of European unity or whether they will again opt for half steps and more can-kicking "solutions."
Rest assured, the world will be watching as the outcome of the Dec. 9 EU summit will have huge ramifications for global growth, the financial markets and the future of the European Union itself.