It’s a jam-packed holiday week ahead. Despite the July 4th holiday on Thursday (and Wednesday a half-day as a result), there is a plethora of data and events throughout the week. So far overnight, S&P 500 futures have already moved almost 20 handles from lows to highs, now trading up about 6 handles from Friday’s close.
Overnight, economic data from Asia and Europe was broadly a bit better than expected, which gave a bid to risk assets. But U.S. data is arguably the most important this week, since potential Fed tapering has been the focus of bond markets for the past month.
The most important U.S. data releases are:
1. ISM Manufacturing at 10am Monday: This release this morning is noteworthy because last month’s reading was the weakest since 2009. Here is the 10 year historical chart, with the 50 level (delineation of expansion vs. contraction) highlighted in red:
2. ADP Employment and ISM Non-Manufacturing on Wednesday: The ADP Employment release is really just a preview for the more important Non-farm Payrolls data on Friday. But it’s a potential market mover since the Fed is most focused on employment as a barometer for policy action. Employment numbers have been the most positive aspect of economic data over the last 6 months. Here is the 10 year chart of ADP, with the unchanged level highlighted in red:
The Services sector has also been much stronger than Manufacturing. ISM Non-Manufacturing data has not registered a reading below 52.50 since early 2010. Here is the 10 year monthly chart, with the 50 level highlighted in red:
3. ECB rate decision on Thursday: While U.S. markets will be closed, Draghi and Co. will be releasing their decision on the 4th of July. That is the most important central bank meeting until the next FOMC on July 31st. The ECB has been reluctant to ease further, and today’s decent European PMI data might be a reason for patience. However, short-term rates have increased in the past month on the recent bout of rate increases, and European banks are showing some renewed signs of stress.
4. Non-Farm Payrolls on Friday: This is the most important report. Not necessarily because of its long-term implications – it is only one monthly report, and employment data is generally lagging anyways. However, the Fed has already emphasized this report’s significance above all others, so the market will treat it that way. Here is the 10 year chart:
It looks quite similar to the ADP data. Once again, employment data has been much more positive than many other aspects of economic data in the U.S.
With this heavy calendar on tap, we might not have a normal, quiet holiday week. The overnight price action is already the first indication that markets might be on the move this week, whether many U.S.-based traders are at their screens or not.