Traders are trading on the New York Stock Exchange (NYSE) in Manhattan on August 3, 2021.
Andrew Kelly | Reuters
With Jackson Hole in the rearview mirror, August’s employment report could be the next engine in the markets.
Shares won last week, which rose again to highs on Friday following a speech by Federal Reserve Chairman Jerome Powell. The president acknowledged that Fed officials expect to roll back their $ 120 billion monthly bond purchase program this year, a first step toward easy policy investment.
Powell was speaking at the annual Jackson Hole, Wyo Symposium at the Kansas City Fed, held virtually this year. He said the Fed has experienced sufficient progress in inflation, but the labor market has not yet improved enough to start the downturn. It is important to note that he also stressed that the reduction in the bond program does not mean that the Fed will automatically continue to increase interest rate hikes.
“Powell has made it clear that the Fed is not ready to raise interest rates soon. The market seems relieved by this. … With some of the economic data already declining, I think the rate hikes are ‘Interest is very, very far away, and investors are happy about it, “said Michael Arone, chief investment strategist at the US SPDR business at State Street Global Advisors.
Arone said the Fed has so far avoided a “reduced rage,” similar to the 2013 market sale when the Fed announced it would reverse quantitative easing. Powell’s speech was widely expected to clarify the Fed’s position on its $ 120 billion monthly bond purchases, after several Fed officials called for the start of a decline.
Jobs are the focal point
Now, the market’s focus shifts even fiercer toward job data, with the August release of the August employment report on Friday.
“Surely the market will react,” said Jim Caron, head of global fixed income macro strategies at Morgan Stanley Investment Management. “I think it’s important. I think the issue they’re going to have is that unemployment benefits don’t really end until early September. It’s really not until you get the number of October jobs to get a more free view September “.
The dollar index collapsed after Powell’s speech on Friday morning, as stocks rose to new highs and Treasury yields fell. Other data for next week includes consumer confidence Tuesday and Wednesday’s publication of the Institute for Supply Management’s manufacturing data and ADP’s private sector payroll data, a sort of preview of the Friday’s government work report.
“I wouldn’t be surprised to see the follow-up on Monday and Tuesday, but before ADP on Wednesday, I would look to adjust the position, which means weaker stocks and weaker bonds and a stronger dollar ahead of job data,” he said. said Marc Chandler, chief market strategist at Bannockburn Global Forex.
He said Powell was delinquent, as expected, though he stressed the volume reduction would be approaching. But the key to the markets was that he stressed that the end of the program does not mean “hardening” or raising rates. The ten-year Treasury yield had risen above 1.35% this week, but fell to 1.31% after Powell spoke on Friday.
“The market will once again be cautious ahead of job data. Then it will be a new world in September. We have to wait after job data to see if these moves have sustainable power. That’s” buy the rumor , sell the fact “Move,” Chandler said.
Some market professionals had expected a Fed reduction announcement at the September meeting, but that view has now shifted mainly to a November or December announcement. “Because of the uncertainty in the delta, I think it will take longer than the next jobs report,” said Diane Swonk, chief economist at Grant Thornton. “Interruption of jobs in particular is if schools have to close again.”
Economists surveyed by Dow Jones predict that 750,000 jobs were created in August and the unemployment rate fell to 5.2%. In July, the economy created 943,000 jobs and unemployment fell to 5.4%. Education contributed greatly in July, with 261,000 jobs added to public schools and private education.
“It doesn’t have to be a spectacular number to meet their needs,” Swonk said of the August report. “You need a solid number of jobs, a little north of half a million … I think we’ll be close to that. They’ll also want to see the September occupation.”
Market risks
Arone, of State Street, said the Fed’s debate on volume reduction will be the most important in the markets, just as the next profit season unfolds.
“It will be interesting at a time when the Fed is starting to get its foot off the pedal,” he said. “Right now, the bull case is still reasonably strong, but markets are not rising directly. If I were to take a specific risk into account, I would keep an eye on third-quarter earnings reports and especially on the case of companies executives say about next year “.
Arone said strong gains have been the main driver of market gains, helping investors ignore concerns about the spread of the Covid Delta variant, the U.S. withdrawal from Afghanistan and the dysfunction in Washington.
“The market has been able to ignore all this noise and rally,” he said, adding that it would be ironic if it were profits that would cause a sale and not a change in Fed policy or something else.
He said the market could become hectic in September and October, a seasonally weak time of year for stocks.
“We saw it this quarter, with great technology, where the numbers were surpassing, but they suggested that future quarters would be slower growth,” Arone said. “Investors didn’t like it and I think it gave us an idea of what happens if it extends beyond the technology sector to other sectors.”
There are a few gains next week, including Zoom Video Monday, Campbell Soup Wednesday and Hewlett Packard and Broadcom Thursday.
Looking at Ida
The oil and gas industry is watching closely the approach of Hurricane Ida, which is heading for Louisiana. Oil, gasoline and natural gas were concentrated on Friday, while energy companies stopped production in the Gulf of Mexico before the storm. There are also several refineries in Louisiana.
Next week’s calendar
Monday
Earnings: Cloudera, Zoom Video
10:00 am Pending sale of homes
Tuesday
Earnings: Designer brands, NetEase, PVH, Crowdstrike, Ambarella
9:00 am House price index
9:00 am S&P CoreLogic Case-Shiller house prices
9:45 am Chicago PMI
10:00 h Consumer confidence
Wednesday
Earnings: Soup Campbell, Chewy, Brown-Forman, Vera Bradley, Nutanix, Smith and Wesson, Asana, ChargePoint
Monthly vehicle sales
7:00 am Weekly mortgage applications
8:15 h ADP employment report
9:45 am Markit manufacturer PMI
10:00 h ISM Manufacturing
10:00 h Construction costs
12:00 pm Atlanta Fed Chairman Raphael Bostic
Thursday
Earnings: Hewlett Packard Enterprise, Broadcom, Lands’ End, American Eagle Outfitters, DocuSign, Ciena, John Wiley, Signet Jewelers, Hormel, Cooper Cos
7:30 am Job cuts from Challenger
8:30 am Unemployment claims
8:30 h Productivity and costs
8:30 am International trade
10:00 h Factory orders
1:00 pm Atlanta Fed Chairman Raphael Bostic
Friday
8:30 h Employment report
9:45 PM Markit Services PMI
10:00 am ISM Services