Top 5 Things to Watch in Markets in the Week Ahead

By Noreen Burke

The U.S. jobs report for July will be the highlight in the week ahead with investors on the watch for any catalysts that could encourage the Federal Reserve to tighten monetary policy sooner. The economic calendar also features the Institute for Supply Management’s PMIs along with data on factory orders and initial jobless claims. Earnings will continue to dominate headlines, with more than a quarter of S&P 500 companies set to report in the coming week. The crackdown by Chinese market regulators could continue to be a major story and in the UK the Bank of England is to hold its latest policy meeting where it is likely to echo the Fed’s view that there is still some way to go before stimulus can be reduced. Here is what you need to know to start your week.

1. July jobs report

Friday’s U.S. non-farm payrolls report will provide fresh clues on the strength of the economic recovery and inform the outlook for Fed policymakers.

Economists are expecting the economy to have added 900,000 jobs in July after a forecast-beating 850,000 in June.

Last week Fed Chair Jerome Powell said the job market still had “some ground to cover” before it would be time to start scaling back stimulus measures the central bank enacted in the spring of 2020 to combat the economic fallout from the coronavirus pandemic.

In June Fed officials began debating how to wind down bond purchases but there is no clear timetable yet for when it will begin pulling back emergency market support measures.

2. Other economic data

Aside from the jobs report, the economic calendar also features other important data including the Institute for Supply Management’s manufacturing data Monday and service sector data on Wednesday. The ISM manufacturing PMI is expected to remain robust, but to again underline supply side strains in the economy that are contributing to higher inflation.

Data on factory orders is slated for Tuesday and the weekly report on initial jobless claims is on Thursday. Jobless claims have fallen considerably since the start of the year amid growing labor demand but the delta variant that’s fueled a recent surge in new infections across the country poses a risk.

Several Fed officials are also scheduled to speak during the week, including Boston Fed President Eric Rosengren, Fed Vice Chair Richard Clarida and Fed Governor Christopher Waller.

3. Earnings

Investors will get a fresh batch of earnings reports in the week ahead from companies such as Eli Lilly (NYSE:LLY), CVS Health (NYSE:CVS) and General Motors (NYSE:GM).

Expectations of strong future earnings have been the key driver of the S&P 500’s gains this year, according to a Credit Suisse analysis of the index’s year-to-date performance that compared change in stock valuations with changes in expected earnings.

U.S. stocks fell on Friday and registered losses for the week as Amazon (NASDAQ:AMZN) shares dropped after the company forecast lower sales growth, but the S&P 500 still notched a sixth straight month of gains.

4. China crackdown

China’s recent regulatory crackdown has frightened investors away from Chinese stocks and left tech companies operating in an uncertain environment.

China has been tightening its regulatory grip on overseas share issuance after it launched a probe of ride-hailing giant Didi Global last month, just days after its listing in New York.

Following a sharp selloff authorities moved to calm market jitters which put a floor under stocks and the yuan, for now.

In the coming week investors will be looking to Chinese PMI data amid growing concerns over a slowdown in the world’s second largest economy, which could be the next test for markets.

5. Bank of England meeting

The Bank of England is expected to keep stimulus running at its current pace when it meets on Thursday, despite some disagreement among policymakers over the size of its bond-buying program against a background of rising inflation and an improving economy.

So, what to watch for at the BoE meeting? Officials are likely to raise their inflation forecast for this year, but the outlook for growth remains uncertain amid concerns over the delta variant.

Also, after two policymakers recently broke ranks to advocate for an early end to its bond-buying stimulus scheme, it will be interesting to gauge whether more officials are coming around to that view.

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