World Week Ahead Eyes on US employment data

Monday 1st July 2013

US labour data will be the focus of investors desperately trying to get a handle on the likelihood and timing of a Federal Reserve easing back of its bond-buying program, after a week of comments by central bank officials failed to provide further clarity.

While last week's slew of speeches helped stem the steep slide of both equity and bond markets, it kept alive worry about the US central bank's next move. Fed Governor Jeremy Stein on Friday sparked expectations the Fed might begin easing in September.

A few more Fed officials are speaking this week, no doubt continuing last week's efforts to clarify the intent of Chairman Ben Bernanke's message on June 19.

On Tuesday, New York Fed President William Dudley is set to speak on economic conditions in Stamford, Connecticut, while Fed Governor Jerome Powell will give a speech on international financial regulatory reform in New York.

"People are hearing all these various Fed governors speak and the message they're trying to send isn't necessarily any clearer than what was talked about by Bernanke," Robert Pavlik, chief market strategist at Banyan Partners, told Bloomberg News.

Bernanke's suggestion that policy makers may begin reducing their US$85 billion-a-month bond-buying program this year and end it in mid-2014 sent global stocks lower and bond yields higher, before Fed officials managed to calm markets last week.

In the past five days, the Dow Jones Industrial Average rose 0.7 percent, while the Standard & Poor's 500 Index added 0.9 percent and the Nasdaq Composite Index advanced 1.4 percent.

US Treasuries also gained for the week, pushing yields on the 10-year note down 5 basis points. Even so, the yield had climbed as high as 2.66 percent on June 24, the highest since September 2011, according to Bloomberg.

Wall Street fell for the month of June, with the Dow dropping 1.4 percent, the S&P 500 shedding 1.5 percent and the Nasdaq also giving up 1.5 percent. Still the Dow is up 15.2 percent so far this year, while the S&P 500 has gained 13.8 percent and the Nasdaq has risen 13.5 percent.

"I think that the market's pretty fairly valued, so we would be surprised if you saw the same kind of rally like you saw in the first half of the year, but it doesn't seem to be a catastrophic environment, like you're going off the cliff either," Steven Baffico, chief executive officer at Four Wood Capital Partners in New York, told Reuters.

US markets are open half the day on Wednesday and are closed for Independence Day on Thursday.

Investors will closely watch the latest US labour data, first arriving in the form of the ADP employment report on Wednesday. On Friday, both the Labor Department's weekly jobless claims and employment report for June are scheduled for release.

A Reuters poll puts non-farm payrolls at 170,000, below the 194,000 six-month moving average, while the unemployment rate is predicted to fall to 7.5 percent from 7.6 percent. Bernanke has made 7 percent the target for beginning to ease its stimulus efforts.

Aside from the all-important employment data, investors will receive other economic clues in the form of the PMI and the ISM manufacturing index data as well as construction spending, due Monday, followed by factory orders on Tuesday, and international trade on Wednesday.

Europe's Stoxx 600 gained 1.7 percent last week, snapping a five-week slide. For the month of June, it posted a drop of 5.3 percent.

Euro-zone employment data for May are due on Monday, as well as the region's PMI manufacturing data for June.

Investors will eye central bank meetings in the UK and the euro zone on Thursday.

The Bank of England's Monetary Policy Committee, meeting for the first time under the chairmanship of Governor Mark Carney, will hold quantitative easing at 375 billion pounds (US$570 billion), according to all 44 economists in a Bloomberg News survey.

The European Central Bank is not expected to adjust its record-low interest rate of 0.5 percent.

BusinessDesk.co.nz

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