The surge in virus cases in the U.S. South and West will continue to be a major driver of risk sentiment this week. The main event on the economic calendar will be the June jobs report, due out on Thursday, a day earlier than usual because of the Independence Day holiday. Investors will be watching the employment figures along with other economic data for signs that the rebound remains in effect. There will be a host of Federal Reserve speakers along with the minutes of the Fed’s June meeting. Investors will also be monitoring simmering geopolitical tensions and appearances by Bank of England officials, who could hint at shifting monetary policy preferences. Here’s what you need to know to start your week.
- U.S. virus cases surge
Five U.S. states, including Florida and Arizona hit record daily highs for coronavirus cases on Saturday and the number of confirmed U.S. cases of the virus rose to more than 2.5 million, a quarter of the world’s total, according to Reuters. The surge in cases has been most pronounced in a handful of Southern and Western states that were among the first to lift lockdowns.
The resurgence in cases is preventing economic activity from fully resuming, prompting investors to weigh expectations of further stimulus in the coming weeks.
One element of Congress’ fiscal aid, a $600 per week supplement to unemployment insurance payments, is set to expire at the end of July.
“Our outlook for the economy is probably going to have to change” without further stimulus said Michael Wilson, chief U.S. equity strategist at Morgan Stanley.
- June jobs report, ISM manufacturing data
Economists are forecasting that the U.S. economy will add three million jobs in June after a shock 2.5 million gain a month earlier. But the two months of gains would still pale in comparison to the approximately 22 million jobs that were lost in in March and April.
The ISM manufacturing index, out Wednesday, is expected to rebound sharply, but even if it rises back to the 50 level that separates growth from contraction the level of activity will still be down sharply from were it was at the start of the year.
Consumer confidence figures are due out on Tuesday and the weekly report on initial jobless claims will be released Thursday at the same time as the nonfarm payrolls data.
- Fedspeak, minutes
Fed Chairman Jerome Powell and Treasury Secretary Steven Mnuchin are due to testify before the House Financial Services Committee Tuesday about the economic stimulus unleashed in response to the virus.
The Fed will publish the minutes of its June rate-setting meeting on Wednesday. Before that, New York Fed President John Williams will be speaking Tuesday on a panel with the International Monetary Fund while Fed Governor Lael Brainard is due to speak about the Dodd-Frank Act at a webinar co-hosted by the Brookings Institution and the University of Michigan.
- Geopolitical tensions
This week could see a potential flare-up in U.S.- China tensions with Beijing due to pass new national security laws for Hong Kong.
U.S. Secretary of State Mike Pompeo said on Friday Washington was imposing visa restrictions on Chinese officials responsible for restricting freedoms in Hong Kong.
Last month, President Donald Trump responded to China’s plans by saying he was initiating a process to eliminate special economic treatment that has allowed Hong Kong to remain a global financial center since its handover by Britain in 1997.
Concerns that an escalation in tensions between Washington and Beijing could jeopardize Chinese purchases under a Phase 1 trade deal Trump agreed with China in January have spooked investors already worried about a surge in coronavirus cases.
- Bank of England speakers in focus
Investors will be closely watching appearances by Bank of England Governor Andrew Bailey and Chief Economist Andrew Haldane this week for any indications of a shift in monetary policy guidance after a surprise decision to taper the bank’s bond buying stimulus program.
The BoE bolstered its firepower by a further 100 billion pounds — as predicted by most economists — but surprised financial markets by saying it expected the increase to see it through to the end of the year.
The BoE’s decision to slow the pace of its huge bond buying program was accompanied by a comment from Bailey that he’d prefer to unwind the balance sheet ahead of raising interest rates — a break from the Carney-era guidance that this process wouldn’t occur until interest rates hit 2%.