Week Ahead: Eyes on June Jobs Report After Dismal May Reading
Traders will return Tuesday from Independence Day festivities with a busy week ahead of them.
Top of the list is the U.S. jobs report for June which will be closely scrutinized for signs that weakness in May was momentary.
"The economic calendar is full this week, with the highlight being the June employment report," Deutsche Bank analysts wrote in a note. "After unexpected weakness in May, we anticipate a modest rebound in hiring last month."
The U.S. economy is expected to have added 155,000 jobs in June after a dismal 38,000 reading in May, according to Deutsche Bank. The 35,000 workers returning from a May strike at Verizon should boost the headline figure. An increase in labor force participation could lift the unemployment rate to 4.9% from 4.7%.
While the chances of a FederalReserve rate hike in the near term are greatly diminished, the June jobs report will still be analyzed through central bank members' eyes. The shock Brexit vote in June torpedoed any chances of a summer rate hike and even pushed the likelihood of an increase to 2017.
The Brexit vote that shocked global markets on June 24 will continue to be felt in the coming week as the United Kingdom's political body remains in flux. Prime Minister David Cameron announced his resignation, effective in coming months, after the pro-exit vote, while former London Mayor Boris Johnson said he would not campaign even though he was widely expected to run for the position.
"Markets are likely to remain volatile and sensitive to news flows regarding political leadership and anticipated next steps regarding the exit from the EU," said Paul Springmeyer, senior vice president and investment managing director at the Private Client Reserve of U.S. Bank. "This topic will be a focal point for much time to come, and investors will likely become more accustomed to the news and the potential impacts as time progresses."
The services sector will be under scrutiny on Wednesday with the release of the non-manufacturing ISM survey for June. Analysts anticipate a reading of 53, a slight uptick from 52.9 in May.
The international trade balance, out on Wednesday, is expected to widen to $40 billion in May from $37.4 billion in April. The result will likely weigh on second-quarter GDP expectations.
The Fed sounded a dovish call following its June meeting, the minutes of which will be released on Wednesday afternoon. The number of Fed officials who expect to see just one rate hike this year rose to six members in June, up from just one official in its previous April meeting.
"The dynamics underpinning Fed policy have been overtaken by the post-Brexit events, making the June FOMC minutes somewhat stale," said James Rossiter, vice president and senior global strategist at TD Securities. "Nevertheless, we expect the tone to be dovish, reflecting a greater awareness among Fed officials about the negative feedback loop from global events."
It's a quieter week of earnings ahead of the second-quarter earnings season kickoff a week later. Alcoa (AA) - Get Report , widely considered the unofficial first earnings report of the season, will report its recent quarter on Monday, July 11.
"With the Fed likely keeping interest rates lower for longer, focus will be turned toward the start of earnings season and the strength of those results as we begin the third quarter," noted Springmeyer.
There will be a smattering of earnings in the week ahead including Greenbrier (GBX) - Get Report and Walgreens Boots Alliance (WBA) - Get Report on Wednesday, and PepsiCo (PEP) - Get Report and Pricesmart (PSMT) - Get Report on Thursday.
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