The market’s focus today clearly will be on the strong December non-farm payroll report, but Europe likely will not be far from investors’ minds, either. The market has found it hard to make meaningful gains this week despite very good readings on the domestic economy, held back by continued Europe-related jitters. I would expect that same trend to remain in place today, as well.

With respect to Europe, the European Central Bank (ECB) had one of its half-hearted interventions in the Euro-zone government bond market trying to reverse a renewed uptrend in Italian and Spanish government bond markets. The yield on the 10-year Italian government bond moved up to 7.1% today, pushing their yield spread to the comparable German bonds above 520 basis points. This is likely to prompt clearing firms to raise margin requirements for Italian bonds, which will increase selling pressure and push yields even higher.

Fears about the health of the banking sector have heightened counter-party risks, making banks park their excess cash with the ECB instead of lending to other banks in the overnight lending market. It appears that the ECB’s recent liquidity operation has not been enough to boost confidence in the financial system.

The Bureau of Labor Statistics reported significantly better-than-expected jobs numbers for December of 200K. Private sector jobs totaled 212K during the month, up from November’s 120K level. The unemployment rate dropped to 8.5% from November’s 8.7%. Average hourly earnings and the average workweek both ticked up, rounding out an overall very positive labor market report.

This report adds to the growing list of evidence showing positive momentum in the U.S. labor market. We saw that in Thursday’s ADP report and have been seeing that in the weekly jobless claims data as well. It is becoming obvious now that the U.S. economy has regained its mojo, even as Europe appears headed towards a recession and questions remain about the Chinese outlook.

In corporate news, RF Micro Devices ([url=http://www.zacks.com/stock/quote/rfmd]RFMD[/url]) provided weak quarterly guidance. We have weaker than expected results from Ruby Tuesday ([url=http://www.zacks.com/stock/quote/rt]RT[/url]), while Family Dollar ([url=http://www.zacks.com/stock/quote/fdo]FDO[/url]) beat on EPS, but came short of revenue expectations.

Same-store sales numbers for December appear to be lighter than what many had been expecting, prompting a number of merchants to cut their outlook for the fourth quarter. We got weak comps from Target ([url=http://www.zacks.com/stock/quote/tgt]TGT[/url]), Kohl’s ([url=http://www.zacks.com/stock/quote/kss]KSS[/url]) and J.C. Penney ([url=http://www.zacks.com/stock/quote/jcp]JCP[/url]), while upscale retailers like Macy’s ([url=http://www.zacks.com/stock/quote/m]M[/url]) and Nordstrom ([url=http://www.zacks.com/stock/quote/jwn]JWN[/url]) showed stronger gains.

The market hasn’t been as enthusiastically responding to the positive run of data this week as one would have expected; likely worries about Europe are keeping it in check. I would expect the same trend to remain in place today as well. But should we be looking for a much more positive response from the market to today’s numbers?