- The four-day Memorial Day week is loaded with important data from jobs to car sales.
- Negative data surprises have raised doubts about whether the Fed will get in more than one rate rise for the remainder of the year, after it hikes in June.
- The biggest data report of week is May employment, but inflation and consumer spending data are also key for the Fed's premise that weakness is transitory.
Come back from the beach Tuesday and bam! There's a virtual wall of economic data ready to hit the market after a three-day weekend.
The four-day post-Memorial Day week could be a big one for markets, which have been monitoring a series of economic reports that have been missing forecasts for weeks now.
Consumer spending, a question mark after first quarter's mixed signals, is scheduled to be reported Tuesday as is the PCE deflator inflation data. There are car sales, running soft lately, and manufacturing Thursday. Then there's Friday's always important employment report.
While the stock market has surged ahead, questions of economic weakness have weighed on the dollar and bond yields. The debate centers around whether the economy will spring back in the second quarter and second half with enough vigor to justify further Federal Reserve interest rate hikes, after an expected move by the Fed in June.
The strong labor market is one area that should continue to be a catalyst for the Fed. Economists expect that 185,000 jobs were created in May, after 211,000 in April. The very low unemployment rate is expected to stay at 4.4 percent, and average hourly wages are projected to edge up 0.3 percent.
"Next week's nonfarm payrolls is critical. It's been taking a back seat to all other data. It's been a low volatility event for the last four to five months," said George Goncalves, head of fixed income strategy at Nomura. But that could change. "If you remember, last year the May number was weak. It was like 38,000, and that's what took the Fed off [hiking rates] completely. It was the weak jobs data, and it was ahead of Brexit."
The jobs number lands after the Fed sent markets a mixed message this past week, in the minutes of its early May meeting. Economists still mostly expect an interest rate hike for June, but some traders read into the release that the central bank will be cautious and assess economic progress before it moves further.
The Fed, in the release, said it saw weakness in both the consumer and inflation as transitory. That makes the personal consumption expenditures data Tuesday also very important, as the data includes a reading on consumer spending and the PCE deflator, the Fed's preferred inflation measure. Core PCE inflation is expected to rise 0.1 percent, after a decline last month.
Some encouragement came in the surprise revision to first-quarter GDP growth, now at 1.2 percent, especially since it included improvement in consumer spending. But the second-quarter forecasts continue to be notched down, and in the past week, economists trimmed about a half percent from the consensus 3 percent, according to the CNBC/Moody's Analytics Rapid Update.
"It wouldn't stop them from hiking in June if we get a weak jobs print, but I think it's what will set the tone of the [Fed post-meeting] statement and press conference. If it's relatively strong, and you see wage increases, which hasn't been happening, they're going to sound even more optimistic at the June meeting and temper some of this dovishness," Goncalves said. If the number is weak, however, the Fed could still raise rates anyway in June.
"If it's a weak number, and they hike in June, the market is going to question whether they are done for the year. That's the trillion-dollar question," he said. The Fed is mostly expected to raise rates two more times this year and then address unwinding its $4.5 trillion balance sheet, by setting up a program to allow maturing securities to roll off its balance sheet. It now replaces them.
The market may look to oil, after the past week's surprising plunge in crude prices. Oil steadied Friday after falling nearly 5 percent Thursday after OPEC's agreement to hold down production for nine more months, just as expected.
President Donald Trump will be back in the White House after his week abroad, and many on Wall Street are wondering if he will resume his Twitter commentaries, after a relatively quiet week. The focus will continue to be on any signs of progress on the policy front, but there also will be interest in the investigation into the Trump campaign's possible ties to Russia.
"I don't think the market gives him a pass. I think when he gets back, the media focus returns to the press digging out more on the Russian connection, and for the markets it's going to be, 'OK, we get that's going on, and what does it mean for your ability to get through tax reform legislation?'" said Wells Fargo's Paul Christopher, who is chief international investment strategist.
Expectations for tax reform have been pushed back and are basically no longer built into bond prices or the dollar. Even as the stock market hits new highs, names that would benefit from Trump's agenda have lagged. The market remains keenly focused on the prospect of tax reform and fiscal stimulus, so any developments around health-care legislation will also be important.
"I still maintain the investor's base case is nothing gets passed," said Jack Ablin, CIO of BMO Private Bank.
U.S. markets closed
Earnings: Bank of Nova Scotia, Ryanair
8:30 a.m. Personal income/spending
9:00 a.m. S&P/Case-Shiller
10:00 a.m. Consumer confidence
8:00 a.m. Dallas Fed President Rob Kaplan
9:45 a.m. Chicago PMI
10:00 a.m. Pending home sales
2:00 p.m. Beige book
7:30 p.m. San Francisco Fed President John Williams
May vehicle sales
8:15 a.m. ADP employment
8:30 a.m. Initial claims
8:30 a.m. Productivity and costs
9:45 a.m. Manufacturing PMI
10:00 a.m. ISM manufacturing
10:00 a.m. Construction spending
8:30 a.m. Employment
8:30 a.m. International trade
Watch: Markets reading economic tea leaves