Global market focus shifts to US jobs report amid earnings rush

Dubai: Even as more companies report results in the week ahead, investor attention will briefly shift towards jobs data reported at the world’s top economy, the US.

Central banks will once again be in focus as the Reserve Bank of Australia (RBA) and Bank of England (BoE) release their latest rate decisions, while the week ends with the latest US jobs report.

Econ data, earnings to drive volatility

Both economic and corporate earnings will play a weighty role in driving volatility as stock markets progress through the week.

On the corporate front, earnings from lending major HSBC and oil giant BP bring updates across a wide spectrum of the economy. In the US, eyes are peeled for Uber, Virgin Galactic, and Moderna results.

More than a quarter of US S&P 500 companies report in the week ahead, but analysts currently evaluate how the July employment report on Friday will be what matters most to stock markets.

More eyes on US jobs data this week

The jobs figure will be closely watched by investors as a strong number could encourage the US Federal Reserve to tighten policy, while a weak number could delay it from paring back bond purchases.

Among the US companies that are reporting this week, majority firms have already cautioned markets how inflation could be a factor weighing their earnings.

However, inflation may not be a problem now to policymakers and financial markets, with investors and traders unnerved by it off late. Analysts view that it currently only concerns everyday buyers and producers.

Sharp rise in inflation short-lived?

The US Federal Reserve has said the sharp jump in inflation is just temporary. The market is instead fixated on the US labour market.

Fed Chairman Jerome Powell said Wednesday he would like to see strong jobs reports before winding down the central bank’s $120 billion a month bond-buying program.

The US Bureau of Labour Statistics will release the July employment report on the morning of Friday, August 6. It’s expected to show 788,000 nonfarm payrolls, down from 850,000 in June, according to Dow Jones.

US jobs seen dipping not as much

The unemployment rate is expected to dip to 5.7 per cent from 5.9 per cent. Average hourly wages are expected to rise 3.9 per cent year over year.

Analysts expect the next two monthly jobs reports to be strong, and the Fed should then be ready to announce in September that it is ready to start the slow unwind of its bond purchasing program.

That is an important step since it would be the first real move away from the central bank’s easy policies that were put in place in the pandemic. It would also mean the Fed would be open to raising interest rates once the tapering is completed.

Stocks to trade in a narrow range?

Before the figures are released, however, market analysts expect stocks to trade in a narrow range.

If the number of jobs added in July is much higher than expected, at more than 1 million, markets could immediately sell off on the idea the Fed would be ready to pare back its bond purchases.

If the number is weaker than expected, the markets could rally. Stock markets elsewhere are seen following suit, as it has been the trend.

World markets gaining ground

World equity markets have been gaining ground as upbeat corporate earnings and US data showing solid second-quarter economic growth brightened the recovery from COVID-19.

The US economy returned to its pre-pandemic level in the second quarter, but the 6.5 per cent annualised rate of expansion, while good, was slower than expected.

Shares in London rose last week on a barrage of positive company results, including from COVID-19 vaccine maker AstraZeneca, energy major Shell and lender Lloyds. Frankfurt and Paris bourses gained as well, boosted by earnings at German carmaker Volkswagen and France’s TotalEnergies.

Stocks driven by strong US earnings

All three major indices in the US ended the week higher and within striking distance of all-time records following strong results from Ford, Comcast and others.

OANDA analyst Craig Erlam evaluated how earnings remain “very promising” and investors were also pleased at the Federal Reserve’s restatement Wednesday of a pledge to maintain stimulus for longer.

With those three positives combined, be it better economic data, better earnings, and a patient Fed, markets will likely have an environment that’s going to be advantageous for equities, experts reveal.