In a busy week ahead, investors will monitor the rising tensions in the Middle East and the December jobs report.
Last Friday, stocks plunged and oil and gold prices spiked following a U.S. drone attack that killed a top Iranian general. The Dow tumbled more than 230 points, and both the Dow and S&P 500 had their worst day in a month. Analysts are widely expecting geopolitical escalation and conflict in the region following the attack. For investors, however, the main question remains how a war between the U.S. and Iran would impact the economy and markets.
“The renewed surge in US-Iran tensions has pushed geopolitical risk back up the list of things to worry about in 2020,” Capital Economics wrote in a note Jan. 3. “But with the US no longer a net importer of oil products, the economy is likely to be resilient even if oil prices spike.”
Iran has said it will retaliate against the assassination, and thus market reaction this week will be closely monitored following new developments.
In addition, market watchers will get a pulse on the labor market Friday when the Labor Department releases the final jobs report of 2019. Economists surveyed by Bloomberg expect that the economy added 166,000 jobs in December, down from 266,000 positions added in November.
Even as the GM strike disrupted the jobs numbers over the past few months, noise from the strikes have subsided and will not have an impact on December’s data, economists argue.
“The strike at GM has added noise to headline payrolls in the past few months, but the underlying trend has been positive,” Credit Suisse said in a note Jan. 2. “The labor market appears to be gaining momentum, defying expectations for a trend slowdown as the economy approaches full employment.”
Meanwhile, J.P.Morgan economist Daniel Silver warned of much softer-than-expected payroll additions for December. “We forecast that nonfarm employment increased by 125,000 in December. This would be one of the weakest months for job growth in recent years, but we think that this softness was due in part to seasonal issues and that job growth will pick up in January.”
“The four-week moving average for initial claims filings hit its highest level in almost two years in the latest weekly report, reaching 233,000. We normally use this measure as a guide to the underlying trend in the labor market, but we think that conditions are healthier than implied by the recent claims readings because we believe that the claims data are distorted by seasonal adjustment issues related to the timing of Thanksgiving,” Silver added.
The U.S. labor market is looking rather solid in 2020, according to Capital Economics. “A range of evidence suggests that prospects for the labour market remain solid heading into 2020. After declining earlier in 2019, temporary help employment has rebounded, which has been a good leading indicator of overall payroll growth in recent years,” the economic research firm outlined in note Jan. 2. “The turnaround in both the ISM and Markit composite employment indices is another clear positive.”
Tuesday: ISM Non-manufacturing Index, December (54.5 expected, 53.9 in November); Trade Balance, November (-$44.5 billion expected, -$47.2 billion in October); Factory Orders, November (-0.8% expected, 0.3% in October); Durable Goods Orders, November final (-2.0% expected, -2.0% prior)
Wednesday: MBA Mortgage Applications, week ended Jan. 3 (-5.3% prior); ADP Employment Change, December (160,000 expected; 67,000 in November)
Thursday: Initial Jobless Claims, week ended Jan. 4 (220,000 expected, 222,000 prior); Continuing Claims, week ended Dec. 28 (1.719 million expected, 1.728 million prior); Bloomberg Consumer Comfort, week ended Jan. 5 (63.9 prior)
Friday: Change in Nonfarm Payrolls, December (160,000 expected, 266,000 in November); Unemployment Rate, December (3.5% expected, 3.5% in November); Average Hourly Earnings month-on-month, December (0.3% expected, 0.2% in November); Average Hourly Earnings year-on-year, December (3.1% expected, 3.1% in November); Wholesale Inventories month-on-month, November final (0.0% expected, 0.0% prior)
Thursday: KB Home (KBH) after market close
Heidi Chung is a reporter at Yahoo Finance. Follow her on Twitter: @heidi_chung.
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