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Market Outlook: Big Week With Jobs Report, Europe

Stocks start the month of September with a boost from the Fed, and now it’s the European Central Bank’s turn to act.

People check the jobs board at a Denver Workforce Center, part of the Denver Office of Economic Development, in Denver, Colorado, U.S.
Bloomberg | Getty Images
People check the jobs board at a Denver Workforce Center, part of the Denver Office of Economic Development, in Denver, Colorado, U.S.

The Labor Day-shortened week is loaded with important U.S. economic news, including the August employment report Friday.

But perhaps more critical to markets will be the outcome of Thursday’s meeting of Europe’s central bankers, after ECB president Mario Draghi kept markets aloft this summer with his promise that they would do all they can to defend the euro.

Fed Chairman Ben Bernanke gave stocks a lift Friday when he left the door open for more quantitative easing (Click here for more) in his annual speech at the Fed’s Jackson Hole symposium.

That helped support a rally that had started with news that the Spanish government approved banking reform (Click here for more) Draghi said a month ago that the ECB would buy Spanish and Italian debt, and the markets are anticipating more details around that plan Thursday.

September historically is the worst month for stocks (Click here for more) with more negative years than positive, and traders have been expecting to see a heightened level of volatility (Click here for more) along with selling, after the relatively quiet August.

They expect the tight presidential race to become more of factor, and a number of big events facing Europe (Click here for more) this month to rock markets, as fiscal and monetary policy officials struggle to contain the sovereign crisis.

But the promise of more central bank stimulus could be a counterbalance. (Click here for more)

“It’s been a slow summer with nobody really doing anything, justifiably slow ahead of what could be a pretty frenetic policy month in September,” said Gina Martin Adams, institutional equity strategist at Wells Fargo Securities. “We either get something (from central bankers) or we don’t, either of which is a trade-able event.”

U.S. economic data is also key, and it has been setting up a pattern of beating economist’s reduced expectations. Analysts see that as a positive catalyst for stocks. (Click for more)

But if the data is weak, it could motivate the Fed to act on a new round of stimulus, also positive for stocks.

Economists expect to see about 120,000 nonfarm payrolls were added in August, a still sluggish pace of job growth.

The jobs report is also an important last piece of data for the Fed ahead of its Sept. 12 and 13 meeting. Fed watchers see a chance the Fed could decide on more easing at that meeting, though many expect to see an announcement later in the fall.

There are also car sales data Tuesday and the ISM manufacturing survey Thursday.

“I think in contrast to the Fed, the ECB is going to have a very hard time delivering on expectations. There’s just so many politics involved,” said Julia Coronado, chief economist at BNP Paribas. “Spain has to ask for a program, and the terms need to be hammered out before the ECB can even think about buying, and there’s still a lot of details to be hammered out about the ECB buying and how they’ll go about it. It’s not going to be a next week announcement.”

The ECB meets ahead of an important German court ruling on whether the ESM, Europe’s new bailout fund, is constitutional. That ruling is Sept. 12 so the ECB may not do much ahead of the ruling though some economists say it could cut the refi rate by a quarter point and talk about bond purchases.

Coronado, speaking on “Closing Bell” Friday, said she does think the ECB will make an announcement about the new facility and give a few specifics about it.

“One of the reasons I think we’re going to see the Fed act is to counterbalance some of the tensions around Europe and keep the economy and the markets very importantly on track,” Coronado said.

“It seems like there’s more intrigue at the ECB than there is at the Fed right now,” said Pierpont Securities chief economist Stephen Stanley. “I don’t think they’re going to come out with a final program yet. The talk was they weren’t going to roll anything out or implement it until the German court rules...I think they’re getting close and there’s some pretty strong fighting going on between Draghi and company and the (head of the) Bundesbank. My feeling is Draghi will carry the day.”

Stanley said he thinks the Fed will not announce more quantitative easing, or asset purchases, after its September meeting.

“I think QE is a debate for after the election,” he said, adding the Fed could wait to see whether it looks like the “fiscal cliff” will be a problem. The fiscal cliff (Click here for more) is used to describe the slam to the economy that would occur if Congress does not act on both expiring Bush tax cuts and the automatic spending cuts that would take effect Jan. 1.

He said the jobs report will be important but it’s not going to affect the Fed as much as the market believes.

“I remain of the view that the Fed is not as sensitive to the next piece of data as the markets think,” he said. “The market is always keyed up on the next piece of data and thinks the world will change if payrolls are 30,000 higher or lower.”

Even with Friday’s rally, stocks closed out the week lower, with the Dow down 67 points at 13,090. The Dow was up 0.6 percent for the month of August, and is now up 5.6 percent in the past three months.

The S&P 500 regained the 1400 level Friday, but was off 0.3 percent for the week at 1406. It is up nearly 2 percent for the month and 7.4 percent in the last three months, for a year-to-date gain of 11.9 percent. The Nasdaq rose 4.3 percent in August to 3066, carried by a nearly 5 percent gain in tech stocks, the market’s best performers.

Besides the central bankers and data, the election stays in the headlines as Democrats hold their convention in Charlotte, N.C. Tuesday through Thursday.

“You’ll get people concentrating on that,” said Art Cashin, director of floor operations at UBS. “Pretty soon, you’re going to see guys building portfolios – the Romney portfolio, the Obama portfolio.”

What Else to Watch

Monday

Labor Day holiday

Tuesday

August vehicle sales

1000 am ISM manufacturing

1000 am Construction spending

Wednesday

0830 am Productivity and costs

Thursday

0815 am ADP employment

0830 am Initial claims

1000 am ISM nonmanufacturing

President Obama nomination at Democratic National Convention

Friday

0830 am August employment report

Follow Patti Domm on Twitter: @pattidomm

Questions? Comments? Email us at marketinsider@cnbc.com

  • Patti Domm

    Patti Domm is CNBC Executive Editor, News, responsible for news coverage of the markets and economy.

  • A CNBC reporter since 1990, Bob Pisani covers Wall Street from the floor of the New York Stock Exchange.

  • CNBC Personal Finance Correspondent

  • JeeYeon Park is a writer for CNBC.com. Follow her on Twitter: @JeeYeonParkCNBC

  • Rick Santelli joined CNBC Business News as an on-air editor in 1999, reporting live from the floor of the Chicago Board of Trade.

  • Senior Producer at CNBC's Breaking News Desk.