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Jobs report — What to know in the week ahead

Heidi Chung

This week will be a condensed week as markets will close early on Wednesday and be closed Thursday in observance of the Independence Day holiday.

The first half of this year is officially over, and it was a record breaking half for the markets. It was the best first half of the year for the S&P 500 (^GSPC) since 1997, the Dow (^DJI) posted its best half since 1999 and the Nasdaq (^IXIC) had it best half since 2003.

Meanwhile, President Donald Trump and President Xi Jinping’s high-stakes meeting at the G20 in Osaka, Japan ended with some good news. The two leaders agreed to continue trade negotiations, and President Trump said that he would hold off on imposing the additional tariffs on the remaining $300 billion worth of Chinese goods. Trump also agreed to allow U.S. companies to sell its products to Chinese tech giant Huawei.

The goodwill gesture should alleviate some of the pressure on American companies, such as semiconductor producers. Companies such as Broadcom (AVGO) said that the Huawei ban would ultimately shave off about $2 billion from its revenue. However, the truce reached between the U.S. and China will at least temporarily relieve the financial impact on both U.S. and Chinese companies.

“The progress made today by President Trump and President Xi in Osaka is good news for the semiconductor industry, the overall tech sector, and the world’s two largest economies,” said John Neuffer, president & CEO of the Semiconductor Industry Association (SIA). “We are encouraged the talks are restarting and additional tariffs are on hold and we look forward to getting more detail on the president’s remarks on Huawei.” The SIA represents about 95% of the U.S. semiconductor industry.

All eyes on the US economy

Though it is a short week ahead, critical economic data is set to be released. Now that the trade war is at least back on track toward a deal, the data released this week will play an even more crucial role for the Federal Reserve and its decision for a rate cut.

First, the ISM manufacturing and PMI manufacturing data on Monday will provide further clues on the struggling manufacturing sector. “Given the outcome of the regional manufacturing surveys, there is a real risk that we see a sub-50 outcome, which will only increase fears of a US economic downturn,” ING wrote in a note to clients Friday.

In addition, recent data showed that consumer confidence is declining. According to data released by the Consumer Board last week, consumer confidence is at its lowest level since September 2017. Thus, the June car sales that will be released on Tuesday should also provide some additional insight into both the health of manufacturing and the U.S. consumer.

Friday’s June jobs report will be the highlight of the week. The jobs report is always an important event; however, this week’s release will be more heavily scrutinized than normal. It comes on the back of a sharply lower-than-expected May report, and on the heels of a dovish FOMC meeting in which policymakers indicated that the central bank is leaning towards a rate cut ahead.

“The Fed is focused on employment growth and what that is telling them about the extent of the economic slowdown currently underway,” Capital Economics wrote in a note Thursday.

Economists expect the U.S. economy to have added 160,000 nonfarm payrolls in June, and for the unemployment rate to have held steady at 3.6%, according to data compiled by Bloomberg.

“Trend job gains are slowing after years of strong performance, but the data in May appeared to overshoot to the downside,” Credit Suisse wrote Thursday. “We expect a modest rebound in June, with headline payrolls growth of 140K. The labor market should be insulated from an ongoing global growth slump, but risks are to the downside in the medium term.”

Economic calendar

Monday: Markit U.S. Manufacturing PMI, June (50.1 prior); ISM Manufacturing, June (51.2 expected, 52.1 prior); ISM Prices Paid, June (53.2 prior); Construction Spending month-on-month, May (0.0% expected, 0.0% prior)

Tuesday: Wards Total Vehicle Sales, June (17 million expected, 17.3 million prior)

Wednesday: MBA Mortgage Applications, week ended June 28 (1.3% prior); ADP Employment Change, June (140,000 expected, 27,000 prior); Trade Balance, May (-$52.5 billion expected, -$50.8 billion prior); Initial Jobless Claims, week ended June 29 (220,000 expected, 227,000 prior); Continuing Claims, week ended June 22 (1.688 million prior); Bloomberg Consumer Comfort, week ended June 30 (63.6 prior); Markit U.S. Services PMI, June (50.7 prior); Markit U.S. Composite PMI, June (50.6 prior); Durable Goods Orders, May (-1.3% prior); Factory Orders, May (-0.1% expected, -0.8% prior); ISM Non-Manufacturing Index, June (56.0 expected, 56.9 prior)

Thursday: Markets closed in observance of Independence Day

Friday: Change in Nonfarm Payrolls, June (160,000 expected, 75,000 prior); Change in Manufacturing Payrolls, June (1,000 expected, 3,000 prior); Unemployment Rate, June (3.6% expected, 3.6% prior)

Earnings calendar

Monday: N/A

Tuesday: N/A

Wednesday: N/A

Thursday: Markets closed in observance of Independence Day

Friday: N/A