Week Ahead: All eyes on US jobs report

Week Ahead

A busy week ahead for the markets with the US nonfarm payrolls as the marquee event, as well as two major central bank statements.

Let’s start with the latest US nonfarm payrolls print.

June’s reading performed way above expectations, and the markets will be watching closer than ever when the latest data is released on Friday.

850,000 payrolls were added to the US economy in June – way above the 720,000 forecast. This was also the sixth consecutive month where new additions were made.

However, the unemployment rate rose from 5.8% to 5.9% – higher than the predicted 5.6% rate forecast. Labour force participation, the go-to metric for gauging workforce shortages nationwide rate didn’t budge at 61.6%.

Hiring appears to have dipped a little overall throughout the spring. There are a couple of reasons for this: virus fears; childcare costs; better unemployment insurance; stimulus & furlough schemes. However, it’s been reported that firms have upped wages in order to entice workers into taking new positions.

The employment rate is also an important measure for Fed Chairman Jerome Powell when assessing stimulus and support levels for the US economy.

We know Powell and co. are relatively comfortable about letting the economy run hot, even in the face of rising inflation. As Powell pointed out at the last Fed meeting, there remains a gap of 7.5 million jobs missing from the US economy, although some reports suggest the figure is 6.8m. Until these open positions are filled, expected more Fed stimulus and support.

In terms of indices, the S&P 500 and Nasdaq responded very well to last month’s bumper jobs report, reaching new record highs. Indices traders will be hoping for more of the same with July’s print.

Sticking with US-related data, ISM, one of the key purchasing manager index reporters for the American economy, shares its manufacturing and services outlooks this week.

US manufacturing was still robust last month, according to ISM’s PMI report, but supply chain issues continue to inhibit growth. The factories printing was rated at 60.6 – down from the 61.2 score registered in May.

Momentum is still strong. Four out of the five subindexes rated by ISM showed high growth. Consumer interest in new goods is still high, despite rising prices. But labour shortages, coupled with the rising price of commodities and materials, has caused bottlenecks and shortages as manufacturers struggle to keep up with demand.

“Record-long raw-material lead times, wide-scale shortages of critical basic materials, rising commodities prices and difficulties in transporting products are continuing to affect all segments of the manufacturing economy,” said Timothy Fiore, chair of the ISM Manufacturing Business Survey Committee.

The same can be said for the services sector: it expanded in June, but that expansion had softened compared with a best-ever May rating. In this case, the index fell from 63.5 to 60.1.

“The rate of expansion in the services sector remains strong, despite the slight pullback in the rate of growth from the previous month’s all-time high,” explained Chair of the ISM Services Business Survey Committee Anthony Nieves. “Challenges with materials shortages, inflation, logistics and employment resources continue to be an impediment to business conditions.”

Keeping that momentum going is all important for America’s economic health – especially as the US is expected to be the driving force behind the global economic recovery across the rest of this year and beyond.

Moving away from data, a pair of central bank statements are on the way next week.

Starting with the Bank of England, rising inflation is the big one here.

In June, inflation reached 2.5%, thanks to widespread increase in consumer goods. This could just be pent-up demand in the British economy finally being unleashed, but as inflation is now at its highest levels for three years, economists’ nerves may be tested.

Governor Bailey has already made his stance clear: the price jumps are only temporary, and we could see it run as high as 3% by the year’s end. It should then fall away back to acceptable levels after that. Currently, the BoE has a mandate to steer inflation towards 2% and keep it there.

However, Bailey has stated he would be ready to pitch rate hikes should inflation run out of this control.

The Reserve Bank of Australia also shares its latest policy thinking and direction this week.

Chances are, no big changes are coming. Governor Philip Lowe has been very clear that no rate hike will be forthcoming until at least 2024. That’s despite Australia’s strong economic fundamentals.

The historic low cash rate of 0.1% isn’t going anywhere. What’s interesting, however, is that July’s meeting led to some tweaks in Australia’s QE programme. The scale has been pulled back. From September onwards, the rate of RBA bond purchases will slow from AUD$5bn to AUD$4bn per week.

The groundwork for more tweaks to policy has been laid by Governor Lowe. Let’s see what this week’s meeting brings in terms of any small-scale changes.

We can’t finish a preview of the week’s key events without touching on US earnings season.

Week three of large cap earnings reports for Q2 2021 begins on Monday. It’s not as busy as the previous week’s reporting flurry, but we still have some significant reports coming in, namely Alibaba and Uber.

Check out our US earnings calendar for more information on which major firms are sharing earnings reports this week or see below.

Major economic data

Date Time (GMT+1) Asset Event
Mon 2-Aug 8.55am EUR German Final Manufacturing PMI
  3.00pm USD US ISM Manufacturing PMI
 
Tue 3-Aug 5.30am AUD RBA Rate Statement
  5.30am AUD Cash Statement
  11.45pm NZD Employment Change q/q
  11.45pm NZD Unemployment Rate
 
Wed 4-Aug 2.30am AUD Retail Sales m/m
  1.15pm USD ADP Nonfarm Employment Change
  3.00pm USD US ISM Services PMI
  3.30pm OIL US Crude Oil Inventories
 
Thu 5-Aug 12.00pm GBP Asset Purchase Facility
  12.00pm GBP BOE Monetary Policy Report
  12.00pm GBP MPC Asset Purchase Facility Votes
  12.00pm GBP Monetary Policy Summary
  12.00pm GBP MPC Official Bank Rate Votes
  12.00pm GBP Official Bank Rate
  3.30pm GAS US Natural Gas Inventories
 
Fri 6-Aug 2.30am AUD RBA Monetary Policy Statement
  1.30pm CAD Employment Change
  1.30pm CAD Unemployment Rate
  1.30pm USD Average Hourly Earnings q/q
  1.30pm USD Nonfarm Employment Change
  1.30pm USD Unemployment Rate

 

Key earnings data

Mon 2 Aug Tue 3 Aug Wed 4 Aug Thu 5 Aug
Arista Networks Alibaba General Motors Ball Corp
Activision Blizzard The Kraft Heinz Co Beyond Meat
Roku Inc Illumina
Uber Technologies Square Inc
The Trade Desk
Virgin Galactic Holdings