Relief rally kicks off September as double-dip worries ease

North American markets had the best week in 8 weeks, as the S&P 500 gained 3.8%, while the Dow went up 2.8%.

The rally was caused by better-than-expected jobs data. The private sector created 67,000 jobs in August, higher than the 41,000 that was expected. Private sector jobs created in July was also revised upward, from 71,000 to 107,000. Other positive data included a better-than-expected reading from the ISM manufacturing index, and the second week in a row of lower initial jobless claims.

In addition to the rally in stocks, U.S. Treasuries also reacted to the positive data. The yield on 10-year U.S. Treasuries rose 0.22% in three days to 2.7%, as investors withdrew money from the safe asset. The yield hit a low of 2.4158% on August 25^th.

News from the euro zone were also positive this week, as the ECB raised its growth forecast for this year from 1% to 1.6%, and next year from 1.2% to 1.4%. The euro also rose 4 days in a row, to end up 1% for the week at US$1.2896.

Despite the better-than-expected employment data, the overall U.S. payroll still lost jobs in August. In fact, the unemployment rate rose in August to 9.6%, after it has remained steady at 9.5% since April.

However, it appears markets have picked up momentum this week with easing double-dip concerns, and it could continue to head higher next week. In particular, Barack Obama is expected to announce measures to help small businesses next week. It will be a light week for economic data, as U.S. trade and initial jobless data are announced on Thursday.