By Noreen Burke
Investing.com -- As Congress continues to debate more fiscal aid the Federal Reserve will likely hold fire at the conclusion of its policy meeting Wednesday but stick to a cautious tone on the economic outlook. With market participants weighing escalating coronavirus cases in southern and western U.S. states and rising tensions between the U.S. and China some of the biggest names in big tech will report earnings. The highlight on the data calendar will be Thursday’s first estimate of U.S. second quarter GDP which will show the full scale of what is expected to have been the largest quarterly contraction ever. Meanwhile, German and euro zone second-quarter GDP figures are also expected to show steep contractions. Here’s what you need to know to start your week.
- Stimulus debate
Approximately 32 million Americans on unemployment benefits are currently receiving $600 per week in expanded jobless benefits, but this is due to expire on July 31st.
U.S. Treasury Secretary Steven Mnuchin on Saturday said that the Trump administration supports extending enhanced unemployment benefits until the end of the year in the next round of coronavirus aid, albeit at a reduced level.
The administration and the U.S. Congress have been trying to hammer out a deal on the next round of pandemic relief and Republicans are expected to unveil their proposed measures early in the week which will then be debated. However, it is unclear whether an agreement can be reached before the current package of expanded jobless benefits expires, which means there could be harder times ahead.
- Federal Reserve meeting
The Fed will probably sit on its hands at its July 28-29 meeting after already slashing interest rates to near zero and pledging unlimited financial asset purchases. Officials are likely to reiterate guidance that rates will remain near zero until the economy gets back to normal.
Fed policymakers have become more downbeat on the economic outlook in recent weeks, with some cautioning that recent improvements in economic data such as job gains may be fleeting amid a resurgence in the coronavirus pandemic.
“The pandemic remains the key driver of the economy’s course. A thick fog of uncertainty still surrounds us, and downside risks predominate,” Fed governor Lael Brainard said earlier this month.
- Tech earnings
The rally on Wall Street that has brought the S&P 500 to nearly 5% below its record high reached in February and seen the Nasdaq gain more than 15% year-to-date will be tested this week, with dozens of major companies reporting earnings.
Facebook (NASDAQ:FB) is due to report on Wednesday, while tech bellwether Apple (NASDAQ:AAPL), along with Alphabet (NASDAQ:GOOGL) and Amazon (NASDAQ:AMZN) are due on Thursday. Other companies scheduled to report include pharmaceuticals Merck (NYSE:MRK), Pfizer (NYSE:PFE) and Eli Lilly (NYSE:LLY), as well as McDonald’s (NYSE:MCD), Procter & Gamble (NYSE:PG) and Starbucks (NASDAQ:SBUX). Results from energy giants Exxon Mobil (NYSE:XOM) and Chevron (NYSE:CVX) are due out Friday.
Facebook, Amazon, Apple, Microsoft (NASDAQ:MSFT) and Google, the five largest U.S. stocks, now account for 22% of the S&P 500’s market capitalization, analysts at Goldman Sachs (NYSE:GS) Goldman Sach said in a recent report.
- U.S. GDP
The U.S. Commerce Department is due to give its first take on second-quarter GDP on Thursday, with analysts forecasting a bruising 34% annualized decline during the three-month period.
The recovery now looks at risk as cases of the virus have exploded across the country, prompting some authorities in the hard-hit South and West regions to either shut down businesses again or pause reopenings.
“Even as the Fed maintains its ultra-loose policy stance and Congress provides further fiscal support, ongoing social distancing requirements are likely to keep GDP well below its pre-virus trend and the unemployment rate elevated over the coming years,” said Paul Ashworth, chief U.S. economist at Capital Economics.
While data on Monday is expected to show another increase in durable goods orders, Thursday’s figures on initial jobless claims are expected to remain elevated.
- Euro zone GDP
Figures from Germany on Thursday and the wider euro zone on Friday will show the extent of the economic contraction caused by lockdowns during the second quarter. Germany’s economy, the euro area’s largest is expected to contract by 9% while the euro zone is set to slump 11.2%.
The euro hit 21-month highs above $1.16 on Friday after the European Union set aside differences and agreed a COVID-19 recovery fund. This signal of solidarity, combined with monetary and budget stimulus, could propel the currency to $1.20, some predict.
The optimism could take the sting out of the dismal GDP data.
--Reuters contributed to this report