The holiday-shortened week in the U.S. brings significant economic data and a few key earnings reports. The main focus will be on the jobs report set to release on Friday, July 5, 2024, which is anticipated to show a slowdown in payroll gains. Alongside this, the week includes other important labor market indicators and a couple of notable earnings releases. Let’s delve into the details of what to expect.
Key Economic Releases
Jobs Report on Friday
The highlight of the week will be the jobs report on Friday. Economists predict that payroll gains will decelerate from 272,000 in May to around 200,000 in June. Despite this slowdown, the unemployment rate is expected to remain steady at approximately 4%. Another crucial aspect to watch will be the growth in average hourly earnings, which is projected to taper to a +0.3% month-over-month pace.
Preceding Labor Market Data
Before the Friday jobs report, two other important labor market indicators will be released:
- Tuesday: The Job Openings and Labor Turnover Survey (JOLTS) will provide insights into the number of job openings and labor market dynamics.
- Wednesday: The ADP National Employment Report will offer a snapshot of private-sector employment changes.
Labor Market Trends
Overall, the U.S. labor market is showing signs of cooling. However, most Americans still perceive jobs as relatively easy to obtain. The recent spike in young adult unemployment is also showing signs of subsiding, indicating some stabilization in that demographic.
Earnings Reports and Corporate Events
Light Earnings Schedule
The earnings calendar for the holiday week is notably light. However, two companies are set to report their quarterly results:
- Tuesday, July 2: Polestar Automotive (NASDAQ: PSNY) and MSC Industrial (MSM), Radius Recycling (RDUS), Simulations Plus (SLP).
- Wednesday, July 3: Constellation Brands (NYSEThe New York Stock Exchange (NYSE) is a global financial powerhouse, and at the heart of its performance measurement stands the NYSE Composite Index (NYA). This comprehensive index...: STZ).
Corporate Buybacks and Earnings Blackout Periods
A broader corporate trend to watch is the expected reduction in corporate buybacks. As earnings blackout periods begin, companies representing nearly half of the S&P 500 Index market cap will be in blackout periods by the week’s end. This reduction in buybacks could have an impact on market liquidity and stock prices.
Entertainment and Market Catalysts
While the U.S. markets may experience a relatively quiet week, a notable event in the entertainment sector could serve as a market catalystA stock catalyst is an engine that will drive your stock either up or down. A catalyst could be news of a new contract, SEC filings, earnings and revenue beats, merger and acquisit... More. Universal Studios is set to open “Despicable Me 4,” which could have implications for Comcast’s stock (CMCSA) and the broader entertainment industry.
International Events and Implications
French Legislative Elections
Across the Atlantic, the first round of the French legislative elections will take place. The outcome of these elections could have significant implications for European stocks, particularly those with exposure to the French market.
US investors are closely watching the first round of the French legislative elections for several key reasons:
- European market stability: The outcome of these elections could significantly impact European financial markets, which are closely interconnected with US markets. Any volatility in European stocks and bondsUnited States Treasury securities are debt instruments issued by the United States government to finance its spending. Treasury securities come in a variety of forms, including bil... More could spill over to US markets.
- Fiscal policy concerns: There are worries about potential increases in government spending and widening budget deficits, especially if far-right or far-left parties gain power. This could lead to instability in French government bonds, which are a significant part of the eurozone bond market.
- Euro currency impact: Political uncertainty in France, the eurozone’s second-largest economy, could weaken the euro. This has implications for US companies with significant European operations and for currency markets.
- Global economic implications: France’s economic policies can influence the broader European economy, which is a major trading partner for the US. Any economic instability in Europe could affect US exports and multinational corporations.
- Geopolitical considerations: Changes in French leadership could impact international alliances, including NATO and support for Ukraine, which are of strategic importance to the US.
- Potential for market opportunities: Some US investors may see volatility resulting from the elections as an opportunity to invest in undervalued European assets.
- Debt crisis concerns: There are fears that excessive spending promises by populist parties could lead to a debt crisis, reminiscent of past European financial crises that had global repercussions.
- ECB policy implications: The election outcome could influence European Central Bank policies, which in turn affect global interest rates and monetary conditions.
US investors are watching these elections closely due to their potential to create significant ripple effects across global financial markets, economic policies, and geopolitical relationships. The rise of populist parties and the possibility of major policy shifts in France make this election particularly consequential for international/global investors.
Why a far-right France Worries Global Investors
A far-right government in France could have significant impacts on European financial markets:
- Market volatility and uncertainty: The possibility of a far-right government has already caused turbulence in European markets, with French stocks, bonds, and the euro experiencing losses . This volatility could intensify if a far-right government actually takes power.
- Widening bond spreads: The yield spread between French and German government bonds has widened to levels not seen since 2017, indicating increased perceived risk for French debt . This could raise borrowing costs for France.
- Potential debt crisis: There are concerns that excessive spending promises by far-right parties could lead to a debt crisis . France’s already high debt levels (110.6% of GDP) could be exacerbated by costly fiscal policies .
- Euro instability: A far-right government’s eurosceptic stance could weaken the euro and create uncertainty about France’s future in the Eurozone .
- Reduced European integration: Far-right policies could slow down or reverse European economic integration efforts, potentially fragmenting the EU market .
- Changes in EU policy direction: A shift in France’s stance could affect EU-wide policies on issues like climate change, immigration, and trade .
- Contagion effects: Instability in France, as the EU’s second-largest economy, could spread to other European markets and potentially globally .
- Investor flight: There could be a move away from French and European assets towards safer havens, impacting asset prices and liquidity .
- ECB policy implications: The European Central Bank’s monetary policy decisions could be influenced by political shifts in France, affecting interest rates and overall financial conditions .
- Potential intervention: If market turmoil becomes severe, there may be a need for ECB or EU intervention to stabilize markets, similar to past European debt crises .
It’s important to note that while these risks exist, some analysts argue that the far-right’s acceptance of the euro and moderation of some policies means the threat to European financial stability may be less severe than in past crises . Nonetheless, the situation would likely lead to increased market uncertainty and volatility in the short to medium term.
UK General Election
In the UK, the general election is another critical event that could influence market sentiment and stock prices in Europe. The results will be closely watched by investors, as they may signal changes in economic policy and regulatory frameworks.
US investors are watching the UK general election for several key reasons:
- Global market impact: The UK is a major global economy, and political changes there can affect international markets, including those in the US. Uncertainty around elections typically increases market volatility, which can impact US investors’ portfolios.
- Economic policy changes: A change in government could lead to shifts in economic policies, potentially affecting trade relationships, regulations, and fiscal policies. These changes could have ripple effects on global markets and economies, including the US.
- Interconnected elections: Both the UK and US are holding major elections in 2024, with the UK vote on July 4 and the US presidential election on November 5. The outcomes of these elections could influence each other and have combined effects on global markets.
- Potential policy shifts: A Labour victory, which current polls suggest is likely, could lead to changes in UK foreign policy, including its relationship with the EU and stance on global issues. This could affect US-UK relations and broader geopolitical dynamics.
- Market opportunities: Changes in UK political leadership and economic policies could create new investment opportunities or risks in UK markets, which US investors may want to capitalize on or avoid.
- Currency implications: Political changes can affect currency values. Fluctuations in the British pound could impact US companies with significant UK operations or investments.
- Broader economic indicators: The UK election and its aftermath may provide insights into global economic trends, such as inflation, growth prospects, and monetary policies, which are relevant to US investors.
- Precedent for populist movements: The UK election could offer insights into the strength of populist movements, which may have implications for the US political landscape and upcoming presidential election.
US investors are watching the UK election due to its potential to impact global markets, economic policies, and geopolitical relationships, all of which can affect US investments and the broader economic landscape.
A Labour victory in the UK general election could impact US investors in several key ways:
- Currency fluctuations: There may be volatility in the value of the British pound, which could affect US companies with significant UK operations or investments. Currency movements can impact the dollar value of UK-based assets and earnings when converted back to USD.
- Economic policy shifts: Labour has pledged to focus on economic growth and “wealth creation”, which could create new investment opportunities. Their plans include establishing a National Wealth Fund to invest in industries of the future and setting up Great British Energy, a new publicly-owned energy company. These initiatives may open up new sectors for investment.
- Regulatory changes: Labour has proposed some reforms to financial services regulation, including streamlining the regulatory rulebook. This could potentially impact US financial firms operating in the UK market.
- Trade relations: While Labour has stated they will not rejoin the EU single market or customs union, they have pledged to improve the UK’s trade relationship with the EU. This could affect supply chains and market access for US companies doing business in both the UK and EU.
- Corporate taxation: Labour has committed to not raising the corporate tax rate above its current 25% level. They’ve also promised to publish a roadmap for business taxation within a year. This relative stability and transparency on tax policy may be viewed positively by US investors.
- Green investments: Labour has pledged significant investments in clean energy and green technology. This could create opportunities for US companies and investors in these sectors.
- Geopolitical considerations: Labour has indicated it will seek to reset relations with the EU and potentially take a different approach to China compared to the current government. These shifts in foreign policy and international relationships could have indirect effects on global markets and investment flows.
Overall, while a Labour victory would likely bring some policy changes, their manifesto suggests a relatively business-friendly approach focused on economic growth. US investors will be watching closely to see how Labour’s policies unfold in practice if they form the next government.
Insights
- Economists predict a slowdown in payroll gains for June.
- U.S. labor market remains strong despite cooling trends.
- Corporate buybacks will likely decrease due to blackout periods.
- European stocks might be affected by French and UK elections.
Looking Ahead
The holiday-shortened week in the U.S. is set to be marked by important economic data and a few notable earnings reports. The jobs report on Friday will be the key focus, with expectations of slower payroll gains and stable unemployment. Alongside this, the release of JOLTS and ADP data will provide additional insights into the labor market’s health. Corporate events include earnings reports from Constellation Brands and Polestar Automotive, while corporate buybacks are expected to fade due to earnings blackout periods. Internationally, the French legislative elections and the UK general election could have broader implications for European stocks. As the week unfolds, market participants will be keenly watching these developments for any signs of significant shifts in economic and market dynamics.
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