World Week Ahead: Focus on US jobs, ECB

Monday 1st September 2014

US employment data and a meeting of policymakers at the European Central Bank will renew the focus on when interest rates will begin to rise in the US, and the degree and timing of additional stimulus in the euro zone.

The state of the labour market in the US will be revealed in the ADP employment report, due Wednesday, weekly jobless claims, due Thursday, and the employment report for August, due Friday.

Last month, in Jackson Hole, Wyoming, US Federal Reserve Chair Janet Yellen warned that “the labour market has yet to fully recover.”

On Friday, the Standard & Poor’s 500 Index finished the session at a record 2,003.37.

"We reached and closed above the 2,000 milestone … and that gets the mental obstacle out of the way," Andre Bakhos, managing director at Janlyn Capital in Bernardsville, New Jersey, told Reuters.

"Economic numbers have been positive for the most part, people are drawing comfort from these numbers, using them as a justification for optimism,” Bakhos said.

Other US data due in the coming days include reports on the PMI and ISM manufacturing indices, as well as construction spending, due Tuesday; factory orders, due Wednesday; and international trade, productivity and costs, the PMI services index and the ISM non-manufacturing index, due Thursday.

On Wednesday, the Fed releases its Beige Book. Investors will also hear from several Fed officials.

On Thursday, Cleveland Fed President Loretta Mester will talk about the economic outlook, monetary policy, and communications, in Pittsburgh, Fed Governor Jerome Powell is scheduled to speak to NYU Money Marketeers, while Minneapolis Fed President Narayana Kocherlakota will address a town hall forum in Helena, Montana.

On Friday, Philadelphia Fed President Charles Plosser discusses the economic outlook at Amelia Island, Florida, while Boston Fed President Eric Rosengren talks to the New Hampshire and Vermont Bankers Association in Boston.

For the week, the S&P 500 gained 0.75 percent, the Dow Jones Industrial Average added 0.57 percent, while the Nasdaq Composite Index climbed 0.92 percent.

With last week’s advance, the Dow has increased 4.8 percent so far in 2014, while the S&P 500 has added 9.9 percent, and the Nasdaq has risen 10.6 percent.

US markets are closed today for the Labor Day holiday, marking the traditional end to the summer season in North America.

In Europe, the Stoxx 600 jumped 1.6 percent last week, while the UK’s FTSE 100 Index rose 0.7 percent. European bonds also rallied, pushing German 10-year yields nine basis points lower to 0.89 percent.

Investors tried to interpret European Central Bank President Mario Draghi comments made in Jackson Hole about a downgraded outlook for inflation and whether that meant further monetary stimulus in the form of asset purchases would be announced soon. Policymakers of the ECB gather on Thursday.

Last Friday a report showed that inflation in the euro zone fell to 0.3 percent in August, the lowest level in almost five years, and well under the ECB’s target of below, but close to, 2 percent.

“Inflation is very low, inflation expectations are drifting lower, but it’s premature to suggest deflation is inevitable,” Martin van Vliet, senior economist at ING Groep in Amsterdam, told Bloomberg News. “We need to see further signs of slowdown, an increased risk of a new downturn before they are willing to say we now have to implement full-blown [quantitative easing]; that’s the nuclear option.”

The latest data on the euro zone scheduled for release in the coming days include

German GDP, euro-zone manufacturing PMI, due today; euro-zone PPI, due Tuesday; euro-zone retail sales, due Wednesday; German factory orders, due Thursday; and euro-zone GDP on Friday.

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