Week Ahead: US job report to signal economic robustness

This week will be dominated by the US job report, as the market hopes job creation can beat May’s below-expectation reading. OPEC and allies gather too with production cut tapering very much on the agenda. Elsewhere, Chinese manufacturing is in focus with the latest PMI release. 

Starting with a look at data, this week’s big report is the US nonfarm payrolls. 

The job report takes on renewed importance this week because the previous releases have fallen below expectation. It will be interesting to see how it fits into the ongoing US economic recovery narrative. 

In May, the market was expecting 671,000 new jobs to be created. The actual figure was 559,000. Even so, while NFPs fell short, the unemployment rate dropped from 6.1% to 5.8%, beating expectations. Employment is a metric the Fed is looking at closely before it tweaks its monetary policy, so steady drops in the unemployment rate is a good thing for US financial big wigs. 

While May was a slight letdown, that was nothing compared with April’s sharp drop. At that time, a million new jobs were forecast. The actual result was 278,000. So, May’s NFP, while underperforming against expectation, actually showed impressive acceleration in job creation. 

While new jobs are being created, the US is still some way below pre-pandemic employment levels. The job level is roughly 7 million shy of typical levels – something the Fed uses as justification in keeping monetary policy loose. 

China’s manufacturing PMI reading is also in focus. Observers and investors will be looking to see if May’s momentum carried over into June. 

For context, the Caixin PMI reading, the baseline for Chinese manufacturing output, reached 52.0 in May. This is the highest level since December 2020, and slight growth from April’s 51.9 reading. Contextually, when it comes to purchasing managers indices, a rating above 50 shows growth. 

In May, higher factory output was driven by higher export and domestic demand, but growth was tempered by higher commodity prices and supply line strains – a similar narrative to what’s concurrently happening in American manufacturing.  

OPEC JMMC’s July meeting is scheduled for Thursday as oil prices continue to surge. At the time of writing, Brent had crossed the $75 threshold, while WTI was trading around the $73.50 mark. 

Will better oil prices encourage OPEC+ to open the taps further? Production levels for August onwards will be under scrutiny, with some allies like Russia agitating for a stronger hike. The conditions are much more favourable than at any time during the pandemic, the argument goes, so why not loosen restrictions above and beyond what’s planned? 

The simple answer is OPEC will still have to proceed with caution. Alongside successful vaccines and lower Covid-19 case numbers in key crude importers, OPEC’s steady approach is partly why oil prices have strengthened in recent months. Flooding markets with more crude, especially with a post-nuclear deal Iran lurking in the background, may result in a glut, and drop prices. 

OPEC and allies were returning 2.1 million barrels per day (bpd) to global markets from May to July. We’ll probably see more after July’s meetings, but there’s a balancing act to be made here. OPEC+ has been walking the tightrope fairly successfully across the year so far, and it’ll be keen to not to upset its strategy going forward. 

Major economic data 

Key earnings data