Week Ahead: U.S. Economic Data On Tap, Nonfarm Payrolls Highlighted
Investing.com | May 28, 2017 07:50AM ET
by Pinchas Cohenh2 The Week That Was/h2
- What the latest US economic data suggests for economic growth
- Why European equities look more promising than US equities
- Economic data suggest investors not concerned with European political risk
Just over a week after experiencing it's largest one day sell-off in the past eight months, the S&P 500 closed Thursday at a record high. The index had an exploding week, which included seven straight days of gains, a weekly increase of 1.46%, and three consecutive record closes. However, both fundamental and technical signs indicate the index's upward trajectory may not be sustainable.
Flash PMI released for Europe and the US show that the global economy overall is growing. However individual releases for May show there is divergence among the economies.
The European data continues to look very strong, Flash PMI remains at a 6-year high, consistent with very strong growth. The Flash PMI has been in an uptrend for a few months in the Eurozone. Perhaps even more telling, there's much stronger economic growth in the first quarter, up almost 25%.
In the US on the other hand, there was a small step back in the manufacturing data, which continues to look fairly mediocre. Equipment investment has been below consensus for the month of April, without showing any upside momentum.
The Fed minutes release last Wednesday had two components: the Fed’s outlook on the next rate hike and its balance sheet. The Fed didn’t raise rates in May—nor were they expected to—but mentioned they would hike gain, “soon,” which is pretty strong language for the Fed and surely ounds like the Fed is prepping the markets for June.
The expectation for this Friday’s unemployment rate is very low, 4.4%, as low as last month's rate, and could be an additional catalyst for a June hike. Additionally, financial markets remain quite strong, which means financial conditions are supportive of a June hike.
As for the Fed’s balance sheet, it's currently over $4 trillion, a consequence of QE having pumped liquid into the economic lifeline by purchasing Treasuries and MBS; now the Fed is getting ready to scale down that balance sheet, but they are going about it very slowly. Rather than sell all these bonds, they will simply not reinvest the money once the bonds mature, in order to avoid a “taper tantrum.”
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This is key for markets. As long as the Fed is smooth about the descaling, markets should not incur too much volatility.
Sector leadership in the S&P 500 has been thin. Rather, it's been mega-caps pushing these record highs, but with no breadth, which is worrying. It remains unclear whether markets can sustain these prices. Alongside that there's complacency as the VIX, after a spike during the previous week, closed on Friday at 9.81, back to multi-decade historic low territory.
Oil, which earlier in the week saw some gains and pushed up above the $50 bbl mark, sank on Thursday after Saudi Arabia ruled out the Russian option of another three-month extension on top of the nine-month production cut extension that had already been priced in by markets. The downturn continued after warnings by the US Energy Information Administration that the purported extension cuts won’t be enough to overcome US production.
As a result, WTI plunged 4.7% for the day. On Friday, it pared almost half those losses.
h2 The Week Ahead/h2US Jobs, Auto Sales
- Dollar General, Hewlett Packard post earnings
- UK Prime Ministerial TV debate
Consensus among economists is that this coming Friday the US's nonfarm payrolls release will show that job growth continued to expand at a steady pace in May, and the unemployment rate will have remained at a decade low of 4.4 percent.
This coming week is a busy one for US economic data, including personal spending and manufacturing, but the monthly jobs report is the highlight. Economists expect earnings to have risen in April, after lagging for the pace of unemployment for some time, while factories are expected to have expanded at a healthy pace.
UK PM Theresa May and opposition leader Jeremy Corbyn will face-off on TV, answering questions from the audience and being interviewed, ahead of the upcoming June 8 election.
Brazil and Israel set interest rates.
US auto markets reports May results.
h3 Monday/h3US markets are closed for Memorial Day while UK markets are closed for the Spring Bank Holiday. Markets in China and Taiwan are closed Monday and Tuesday for the Dragon Boat Festival holiday.
ECB President Mario Draghi addresses the European Parliament at 15:00 in Brussels (9:00 EDT).
Federal Reserve Bank of San Francisco President John Williams speaks at a symposium on Asian Banking and finance on May 28/20:15 EDT
In their first appearance since the snap election was called, UK PM Theresa May and opposition leader Jeremy Corbyn field interviews and audience grilings on Channel 4 television, just 10 days before the general election.
h3 Tuesday/h3Economists expect that US personal spending will have rebounded in April, after a weak first quarter, supported by higher salaries.
The Brazil Investment Forum features speeches by Brazilian President Michel Temer, Finance Minister Henrique Meirelles, and Petrobras CEO Pedro Parente. In Sao Paulo, through May 31. Investors who seek distressed assets at bargain prices, will follow this meeting closely. The Brazilian president is being investigated for alleged obstruction of justice. Comments and opinions expressed at such conferences have a high probability of creating short-term trading opportunities as well as reinforcing shifting of tends.
U.K. Labour Party leader Jeremy Corbyn appears on BBC TV for an interview that will focus on personality rather than politics. 19:00 London time (14:00 EDT).
Economic Calendar Events
- Personal Income expected to rise from 0.2% to 0.4%
- Personal Spending expected to rise from 0.0% to 0.4%
- S&P CoreLogic home prices is expected rise MoM 0.69% to 0.90% but fall YoY from 5.85% to 5.61%
- Consumer Confidence is expected to fall from 120.3 to 119.8
- Dallas Fed Manufacturing is expected to fall from 16.8 to 15.0
Wednesday
Consensus has Brazil’s central bank announcing a 75 – 100 basis point cut from the current 11.25 percent, after inflation fell in April below its 4.5 percent target, for the first time in seven years.
Exxon Mobil (NYSE:XOM) holds its annual shareholder meeting. Investor pressure is building for the company to provide more disclosure on its resiliency to climate change. In addition, a proxy advisory firm is urging shareholders to vote against the company’s executive compensation program, which awarded former CEO Rex Tillerson—now US Secretary of State—a $27.4 million compensation package last year, including a $3.2 million salary. In Dallas at 09:30 (08:30 EDT).
Hewlett Packard (NYSE:HPE) releases earnings after the market close. Its market cap is $32 billion, with a the total one-year return is 46.55%, beating the market. It reported a recent EPS growth rate of 6.67%, not a good sign compared to the industry average of 65.34%.
Economic Calendar Events
- MBA Mortgage Applications, prior was 4.4%
- Chicago PMI was 58.3%, expected to fall to 57%
- Pending Home Sales is expected to rise MoM from -0.8% to 0.3%
US manufacturing probably continued to expand at a robust pace in May, according to expectations for the ISM Manufacturing PMI release.
Brazil’s economy probably expanded in the first quarter to leave a two-year recession behind. While economists see modest growth in 2017 quickening in 2018, explosive new graft allegations against both current and past government figures threaten to derail the nascent rebound. 08:00 in Rio de Janeiro (07:00 EDT)
The U.S. auto market reports May results, possibly starting with Ford Motor (NYSE:F) at 09:15 EDT. Early estimates indicate another so-so month. General Motors (NYSE:GM) may report the biggest gain among top automakers.
Dollar General (NYSE:DG) is scheduled to release earnings before the market opens. Wall Street consensus expects a 2.8% decline, with $1.00 EPS. Total sales are projected to increase 6.1% to $5.6 billion.
Economic Calendar Events
- ADP Employment Change is expected to rise from 177K to 180K
- Initial Jobless Claims are expected to tick up, from 234K to 239K
- Continuing Claims are expected to decline, from 1923K to 1920K
- Productivity is expected to decline, from 54.8 to 54.6, while cost is expected to fall much more significantly, from 68.5 to 67. Thus, relatively speaking, productivity rose far more than the straight read would indicate.
- US Manufacturing PMI, is expected to remain flat at 52.5
- Construction spending is expected to risen from -.2% to 0.5%
Expectations are that US nonfarm payrolls grew by 180,000 in May, keeping the uptrend for monthly hiring in place since the start of 2016. Unemployment is expected to remain at a historically low 4.4 percent, and expectations are that wages component has finally begun to rise to reflect that “employee market.”
UK Prime Minister Theresa May and opposition leader Jeremy Corbyn face off once again, taking audience questions in a special BBC TV program that airs six day before the snap election. 20:30 in York, northern England (15:30 EDT).
ENERGY/COMMODITIES: Weekly Commodity Futures Trading Commission report on futures and options positions; Weekly Baker Hughes U.S. rig count; Weekly U.S. Department of Agriculture net export sales and shipments.
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