With a turbulent month in equity markets drawing to a close, investors will be looking ahead to Friday’s nonfarm payrolls report which could help set the market tone for June. Recent encouraging economic data has fueled hopes that the Federal Reserve will be able to tighten monetary policy without tipping the economy into recession. Investors will also be looking to PMI data out of China, amid mounting concerns over the economic outlook for the world’s second-largest economy hit by COVID restrictions. Meanwhile, Eurozone inflation data due out on Tuesday is expected to reach a fresh record high, which would cement expectations for the European Central Bank to kick off its own rate hiking cycle. Here’s what you need to know to start your week.
Nonfarm Payrolls
Friday’s nonfarm payrolls data for May is expected to show that the labor market remains robust, with economists expecting the economy to have added 320,000 jobs in May, slowing from 428,000 in April. While still firm it would represent the smallest jobs growth in around a year.
Wage growth is expected to remain solid amid a shortage of workers and the unemployment rate is expected to tick down to 3.5%.
The economic calendar also features data on private-sector hiring, JOLTS job openings, a closely watched indicator of demand in the labor market and weekly figures on initial jobless claims.
ISM data on manufacturing and service sector activity will be in the spotlight amid concerns over the impact of rising prices and supply chain issues. There will also be a report on consumer confidence.
Stocks to Extend Recovery?
U.S. equity markets rallied on Friday, with all three major indexes snapping their longest weekly losing streaks in decades, after better-than-expected economic data added to hopes that the Fed may not need to tighten monetary policy as much as previously feared.
Data on Friday showed that consumer spending rose more than expected in April and also indicated that inflation slowed.
The consumer spending data that came after last Wednesday’s minutes of the Fed’s May meeting showed that “a number” of policymakers thought “monthly data might suggest that overall price pressures may no longer be worsening.”
The Fed has raised interest rates by 75 basis points so far this year and markets are pricing in 50 basis point rate hikes in June and July.
Some market analysts now think concerns over the economic impact of higher rates at a time when inflation may have peaked mean the central bank could pause its tightening cycle in September.
U.S. stock markets will remain closed on Monday in observance of Memorial Day.
Fedspeak
Investors will get the chance to hear from several Fed policymakers on the economic outlook in the coming week.
Fed Governor Christopher Waller is due to speak on Monday, while New York Fed President John Williams and St. Louis Fed President James Bullard, a noted hawk, are both due to speak on Wednesday, followed a day later by Cleveland Fed President Loretta Mester.
The Fed is also due to publish its latest Beige Book on Wednesday, which looks at local economic conditions in each of the Fed’s 12 districts.
Chinese PMIs
China’s economy has shown signs of recovery this month in the wake of April’s slump but activity is weaker than last year and many analysts expect a second-quarter contraction.
Investors are concerned over the lack of a roadmap for exiting the country’s zero-COVID strategy, which is running counter to trends seen in other parts of the world.
Beijing is to release forward-looking manufacturing and non-manufacturing PMIs on Tuesday and Wednesday which economists expect to remain below 50, pointing to a monthly contraction in May.
China has already unveiled a broad package of measures aimed at boosting the economy and Premier Li Keqiang promised detailed guidelines for their implementation soon.
Shanghai is aiming to exit a two-month lockdown on June 1, while Beijing reopened some parts of public transport on Sunday as well as some malls as infections stabilized
Eurozone Inflation
The euro area is to release its latest inflation flash estimate on Tuesday, with economists expecting the consumer price index to hit another record high of 7.7% in May, up from 7.4% in April.
That would cement expectations for policy normalization at the ECB, which is due to hold its next meeting on June 9.
Economists and markets are expecting a quarter percentage rate hike in July but a very strong inflation reading could fuel talk of a bigger move, which some ECB officials are already pushing for.
ECB President Christine Lagarde has said that the deposit rate should start rising in July and could be at zero or “slightly above” by the end of September before rising further “towards the neutral rate”.
