Top 5 things to watch in the markets in the coming week

© Reuters

Noreen Burke – As a volatile month for stocks draws to a close, investors will look to Friday’s nonfarm payrolls report, which could help set the tone for June. Recent encouraging economic data has fueled hopes that the Federal Reserve can tighten monetary policy without tipping the economy into recession. Investors will also focus on China’s PMI data amid growing concerns about the economic outlook for the world’s second-largest economy hit by coronavirus restrictions. Meanwhile, euro zone inflation data on Tuesday is expected to hit a record high, bolstering expectations that the European Central Bank will start its own rate hike cycle. Here’s what you need to know to start your new week.

  1. Nonfarm payrolls

Friday’s nonfarm payrolls data for May is expected to show the labor market remains strong, with economists expecting the economy to add jobs in May, down from 428,000 in April. While still strong, it will represent the smallest job gains in a year or so.

Amid worker shortages, wage growth is expected to hold steady and unemployment is expected to fall to .

The economic calendar also includes data on closely watched indicators and weekly figures on labor market demand.

ISM data and industry activity will be in focus amid concerns over the impact of rising prices and supply chain issues. There will also be reports on that.

  1. Stock market recovery?

U.S. stocks rose on Friday as the three major indexes snapped their longest weekly losing streak in decades, after better-than-expected economic data raised hopes that the Federal Reserve may not need to tighten monetary policy as much as previously feared.

Data on Friday showed a larger-than-expected increase in April, also pointing to a slowdown in inflation.

The consumer spending data came after the Federal Reserve’s May meeting last Wednesday showed that “some” policymakers believed “monthly data may suggest that overall price pressures may no longer worsen.”

The Fed has raised rates by 75 basis points so far this year, and the market expects a 50 basis point hike in June and July.

Some market analysts now believe that at a time when inflation may have peaked, concerns about the economic impact of higher interest rates mean the central bank could be in for that in September.

U.S. markets will remain closed on Monday in observance of Memorial Day.

3. Federal speech

Investors will have a chance to hear from several Fed policymakers on the outlook for the economy in the week ahead.

Fed Governor Christopher is due to speak on Monday, while New York Fed President John and prominent hawk St. Louis Fed President James are both due to speak on Wednesday, with Cleveland Fed President Loretta speaking a day later.

The Fed will also release an update on Wednesday, which looks at local economic conditions in each of the Fed’s 12 regions.

  1. China Purchasing Managers Index

China’s economy showed signs of recovery this month after a sluggish April, but economic activity was weaker than last year, with many analysts expecting a contraction in the second quarter.

Investors worry about the lack of a roadmap for exiting the country’s zero-coronavirus strategy, bucking trends in the rest of the world.

Beijing is due to issue forward-looking sums on Tuesday and Wednesday, and economists expect the index to stay below 50, indicating a monthly contraction in May.

China has unveiled a package of measures aimed at boosting the economy, and Premier Li Keqiang has promised to provide detailed guidelines for their implementation soon.

Shanghai imposed a two-month lockdown on June 1, while Beijing reopened some public transport facilities as well as some shopping malls on Sunday as infections stabilized

  1. Eurozone inflation

The euro zone will release its latest inflation forecasts on Tuesday, with economists expecting another record high in May, up from 7.4% in April.

This will cement expectations for policy normalization at the European Central Bank, which is due to hold its next meeting on June 9.

Economists and markets expect a 25% rate hike in July, but very strong inflation data could spark talk of a bigger move, something some ECB officials agreed.

ECB President Christine Lagarde has said deposit rates should start rising in July and could hit zero or “slightly above” by the end of September before further “closer to neutral”.

– Reuters contributed to this report