July 5, 2022 -
Markets were mixed to start the shortened trading week after exchanges were closed Monday in observance of Independence Day. Major indices opened lower Tuesday but rallied later in the day with cyclical and technology stocks leading the way as the tech-heavy NASDAQ gained 1.75% on the day.
Monetary Policy
Fears of an upcoming recession continue to move markets as the Federal Reserve and central banks around the world tighten monetary policy in an effort to curb inflation. Investors expect continued rate hikes as the most recent median projections from the Fed forecasted rates reaching 3.75% in 2023, far above the current range of 1.5% to 1.75%. The Fed has repeatedly stated it will be nimble in raising rates in an effort to tighten monetary policy without leading to an economic recession.However, investors have grown increasingly pessimistic about the Fed’s ability to balance economic growth and rate hikes after higher-than-expected interest rate jumps that went contrary to previous signals from the central bank. The Fed has increasingly appeared reactionary to economic data as opposed to being out in front of economic trends.
Jobs Report
For new economic data this week, investors will be primarily concerned with the monthly Employment Situation Report. The June jobs report is expected to show the economy adding far fewer jobs than it did in May with a consensus of 250,000 added following the 390,000 reported the previous month. Meanwhile, the unemployment rate is projected to stay flat at 3.6%, still far below long-term averages and under the often targeted 4% rate. Lastly, the average workweek is estimated to stay flat and average hourly earnings are expected to rise 0.3%, matching its increase from May.The expected drop in jobs added for the month is unlikely to waver the Fed’s projected move for another 75 or 50 basis point rate hike. Unemployment still remains low while the labor force participation rate remains below where it was before the pandemic but has been steadily increasing over the last two years. Only a significant miss on projections would likely cause the Fed to slow its rate increases while a stronger than expected report will most likely lead to the central bank going forward with another 75-point hike.
Other Data
Economic data is pretty light this week outside of the monthly jobs report as unemployment claims and the trade balance highlight other significant data. Initial unemployment claims are projected to inch slightly higher from 231,000 claims to 234,000 claims. Weekly claims had been steadily rising from lows set in March but have stayed mostly flat over the last month around 230,000. Meanwhile, the trade balance is expected to improve from an $87.1 billion deficit to “only” $84.9 billion in May.Lastly, earnings reports are extremely light this week with Levi Strauss (LEVI), WD-40 (WDFC), Helen of Troy (HELE), PriceSmart (PSMT), and Byrna Technologies (BYRN) set to report quarterly earnings.
Economic Events this Week
Tuesday- 10:00 ET - Factory Orders
Wednesday
- 10:00 ET - ISM Non-Manufacturing Index
- 10:00 ET - JOLTS - Job Openings
- 14:00 ET - FOMC Minutes
Thursday
- 08:15 ET - ADP Employment Change
- 08:30 ET - Continuing Claims
- 08:30 ET - Initial Claims
- 08:30 ET - Trade Balance
- 11:00 ET - EIA Crude Oil Inventories
Friday
- 08:30 ET - Average Workweek
- 08:30 ET - Avg. Hourly Earnings
- 08:30 ET - Nonfarm Payrolls
- 08:30 ET - Nonfarm Private Payrolls
- 08:30 ET - Unemployment Rate