The market will face its moment of truth this week.
After hitting record highs earlier in the week, stocks retreated from those levels, after a blowout jobs report on Friday dampened the chances of a July rate cut.
The U.S. economy added a stunningly strong 224,000 jobs in June, well above consensus estimates for 160,000 positions. June’s report was closely watched by investors, as many believed that a second consecutive weak jobs report would force the Federal Reserve to slash interest rates at its meeting later this month. Nevertheless, the labor market remained the bright spot in the economy, as other recent economic data show signs of deceleration amid the longest economic expansion on record.
[Read more: Jobs report smashes expectations]
This week, Federal Reserve Chairman Jerome Powell will be delivering his semi-annual Monetary Policy Report to Congress on Wednesday and Thursday, and the Federal Open Market Committee (FOMC) will also release its June meeting minutes on Wednesday.
Powell’s testimony will carry extra weight and will be even more closely watched, as market watchers look for clues on the central bank’s monetary policy path going forward. In addition, the Fed’s meeting minutes will provide insight into the views of FOMC members.
Some economists now argue that a rate cut is off of the table in July.
“The June employment report was strong with job growth of 224K (three-month average of 171K), leaving us comfortable with our view that the Fed will not cut in July and wait until September to deliver the first rate reduction,” Bank of America Merrill Lynch wrote in a note Friday. “So what did we learn? No fireworks from the G20 meeting, the ISM manufacturing index held in expansion territory at 51.7 and job creation was robust. The combination does not point to an immediate cut. At a minimum, this takes a 50bp cut off the table but should also prompt the Fed to argue for waiting for more data.”
Capital Economics echoed Bank of America’s prediction. “The data this week were consistent with a continued slowdown in economic growth, but don’t yet look weak enough to convince the Fed to cut interest rates immediately,” the research firm wrote on Friday. “We suspect that Chair Jerome Powell will use his semi-annual testimony to Congress next week to push back against expectations of a rate cut later this month.”
The fed fund futures are currently implying no chance of a 50 basis point cut in July, though a 25 basis point cut is still being priced in.
While the Fed determines whether or not a rate cut is necessary, President Donald Trump continued his attack on the central bank in a series of tweets late Friday evening.
Strong jobs report, low inflation, and other countries around the world doing anything possible to take advantage of the United States, knowing that our Federal Reserve doesn’t have a clue! They raised rates too soon, too often, & tightened, while others did just the opposite....— Donald J. Trump (@realDonaldTrump) July 6, 2019
....As well as we are doing from the day after the great Election, when the Market shot right up, it could have been even better - massive additional wealth would have been created, & used very well. Our most difficult problem is not our competitors, it is the Federal Reserve!— Donald J. Trump (@realDonaldTrump) July 6, 2019
Though the Fed and Powell have indicated that they do not make decisions based on political pressure, the president continues to relentlessly target the central bank.
Meanwhile, PepsiCo will be the first major company to report second-quarter earnings on Tuesday.
Tuesday: NFIB Small Business Optimism, June (103.0 expected, 105.0 prior); JOLTS Job Openings, May (7449 prior)
Wednesday: MBA Mortgage Applications, week ended July 5 (-0.1% prior); Wholesale Inventories month-on-month, May (0.4% expected, 0.4% prior)
Thursday: CPI month-on-month, June (0.0% expected, 0.1% prior); CPI excluding food and energy month-on-month, June (0.2% expected, 0.1% prior); CPI year-on-year, June (1.6% expected, 1.8% prior); CPI excluding food and energy year-on-year, June (2.0% expected, 2.0% prior); Initial Jobless Claims, week ended July 6 (220,000 expected, 221,000 prior); Continuing Claims, week ended June 29 (1.686 million prior); Bloomberg Consumer Comfort, week ended July 7 (62.6 prior); Monthly Budget Statement, June (-$207.8 billion prior)
Friday: PPI Final Demand month-on-month, June (0.1% expected, 0.1% prior); PPI excluding food and energy month-on-month, June (0.2% expected, 0.2% prior); PPI Final Demand year-on-year, June (1.7% expected, 1.8% prior); PPI excluding food and energy year-on-year, June (2.1% expected, 2.3% prior)
Wednesday: Bed Bath & Beyond (BBBY) after market close
Thursday: Delta Air Lines (DAL) before market open
Heidi Chung is a reporter at Yahoo Finance. Follow her on Twitter: @heidi_chung.
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