World Week Ahead: Eyes on US jobs reports

Monday 3rd August 2015

Aside from the latest corporate earnings including from Walt Disney, a US jobs report and its implication for the timing of the first Federal Reserve interest rate rise in almost a decade will draw the focus in the coming week.

On Friday, a report is expected to show US companies added 222,000 jobs in July, compared with 223,000 in June, according to a Reuters poll.

"A good payroll number is a positive to the economy, but it means the Fed will be more likely to raise rates, so the result in the stock market could be indeterminate," Brian Reynolds, chief market strategist at New Albion Partners in New York, told Reuters.

At the end of last week’s Fed meeting, the Federal Open Market Committee kept alive expectations it will increase its benchmark fed funds rate in 2015.

Traders are pricing in a 38 percent probability that the Fed will lift rates at its September meeting, according to Bloomberg.

In the coming days, policy makers elsewhere — at the Reserve Bank of Australia, the Bank of England and the Bank of Japan respectively gather, and will announce their monetary policy decisions. The Bank of England will also release minutes of the meeting and quarterly economic forecasts, on Thursday, along with its rate decision.

Besides the Fed, the Bank of England is the only other major global central bank to have flagged a rate rise is approaching.

Last Friday, a report showed the US employment cost index rose a tepid 0.2 percent in the second quarter, slowing from a 0.7 percent increase in the first quarter.

"Labour market fundamentals are improving, job openings are at record highs, and slack on a steady downtrend,” Eric Green, chief economist at TD Securities in New York, told Reuters. “This is precisely how the Fed will interpret this report, even if the numbers here are atrocious.”

Other economic data due this week include motor vehicle sales, personal income and outlays, the PMI and ISM manufacturing indices, and construction spending, due today; factory orders, due Tuesday; ADP employment report, international trade, PMI services index, and the ISM non-manufacturing index, due Wednesday; weekly jobless claims, due Thursday; and consumer credit, due Friday.

On Wall Street last week, the Dow Jones Industrial Average gained 0.7 percent, the Standard & Poor’s 500 Index climbed 1.2 percent, while the Nasdaq Composite Index rose 0.8 percent.

“The most important thing is earnings,” Karyn Cavanaugh, a senior market strategist at Voya Investment Management, told Bloomberg. “If the sky is falling, companies wouldn’t be able to make money. The fact that earnings are coming in pretty decently has a settling effect on the market.”

About two thirds of S&P 500 companies have reported earnings this season, with 74 percent exceeding profit estimates and about 50 percent surpassing sales projections, according to Bloomberg.

On Friday, shares of Expedia rallied 13 percent after the company reported better than expected earnings.

But not all companies are bettering expectations. Shares of LinkedIn plunged 10 percent as its latest earnings raised concern about the outlook for the company's growth.

Also missing the mark were earnings from both Chevron and Exxon Mobil.

The outlook for oil remains dicey. US oil futures slumped more than 20 percent in July amid concern about a continuation of the current global glut and weakening demand from China.

In Europe, the Stoxx 600 Index increased 4 percent last month.

Today, Greece’s financial markets are set to reopen, with some limits, following a five week suspension as the debt laden country battled its international creditors for a fresh bailout.

Besides earnings such as from Deutsche Telekom and BMW, investors will eye reports on eurozone manufacturing, due today; eurozone producer prices, due Tuesday; eurozone services PMI, and eurozone retail sales, due Wednesday; German factory orders, due Thursday; as well as German industrial production, and German trade balance, due Friday.

BusinessDesk.co.nz

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