World Week Ahead: US jobs, Bank of England

Monday 1st August 2016

After the Federal Open Market Committee signalled it might hike interest rates this year, investors will closely watch the latest US jobs data including the government’s nonfarm payrolls report on Friday.

First, there is the ADP employment report on Wednesday, and weekly jobless claims on Thursday.

Last Wednesday, the Fed noted that the labour market had improved since its June meeting. But a report last Friday showed the US economy expanded at a 1.2 percent rate, falling well short of expectations. The greenback weakened against the euro and yen.

"GDP growth is not weak enough to cause panic, but weak enough for the Fed not to hike," Arnab Nilim, a money manager at AllianceBernstein, told Bloomberg. "If non-farm payrolls are stronger, the [US] dollar can come back. Until then, the dollar will be range bound."

Investors will also eye Dallas Fed President Rob Kaplan, who is set to speak twice this week, first on Tuesday in Beijing and again on Thursday in Shanghai.

Other scheduled US data include the PMI and ISM manufacturing indices, and construction spending, due today; personal income and outlays, due Tuesday; PMI services index and the ISM non-manufacturing index, due Wednesday; factory orders, due Thursday; and international trade, due Friday.

Last week, the Dow Jones Industrial Average slid 0.8 percent, the Standard & Poor’s 500 Index slipped 0.1 percent. In contrast, the Nasdaq Composite Index climbed 1.2 percent as tech shares rallied.

The S&P 500 touched an intra-record high of 2,177.09 on Friday and posted a gain of 3.6 percent for the month of July.

Among US companies set to release earnings in the coming days are Procter & Gamble, Pfizer, and LinkedIn.

On Friday shares of Alphabet, Google’s parent company, rallied, closing 3.3 percent higher, after it posted better-than-expected earnings. Shares of Amazon also gained, touching a record high during the day, on a better-than-expected sales estimate for the third quarter.

The two joined Microsoft, Apple and Facebook in rewarding investors with positive earnings surprises.

"The results are further indications that the leaders in their respective spaces are taking market shares and it is very much a microcosm of the internet as a whole," Benchmark Company analyst Daniel Kurnos told Reuters. “I think people still continue to underestimate how large the addressable opportunity is.”

A Bank of England policy meeting will be a key focus this week. A Reuters poll of economists published on July 26 forecast the British central bank will lower its benchmark bank rate to 0.25 percent from 0.50 percent on August 4, but most said it will not revive its bond-buying program for now.

On Friday Europe’s Stoxx 600 Index rose 0.7 percent. That brought its gain for the month of July to 3.6 percent, according to Bloomberg. Corporate earnings here have by and large surpassed expectations so far, including most recently by Barclays and Electricite de France.

Also on Friday, results of so-called stress tests by European regulators showed that the region's banks overall are on a steadier footing.

"The results are better than expected for the bigger banks, including Deutsche Bank and UniCredit,” Carlo Alberto Carnevale Maffe, professor of business strategy at Milan’s Bocconi University, told Bloomberg. "What remains a worry is Monte Paschi which needs urgent measures to replenish capital."

In Japan, investors will eye a government fiscal stimulus policy announcement on Tuesday after the nation’s central bank on Friday disappointed with only meagre additional monetary stimulus.

"Against the backdrop of the United Kingdom's vote to leave the European Union and the slowdown in emerging economies, uncertainties surrounding overseas economies have increased and volatile developments have continued in the global financial markets," the Bank of Japan said in a statement on Friday.

BusinessDesk.co.nz

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