Top 5 Things to Watch in Markets in the Week Ahead

© Reuters

By Noreen Burke

Investing.com -- The May nonfarm payrolls report is the main event in the coming week with investors watching to see if the unexpectedly weak April employment report was just a one-time blip. In a week shortened by Monday’s Memorial Day holiday the strength of the recovery will be front and center, with updates due on manufacturing and services sector activity, private sector hiring and jobless claims. Several Federal Reserve policymakers are also due to speak. Energy traders will be eyeing Tuesday’s OPEC+ meeting and the euro zone is to release inflation data against a backdrop of concerns over what rising price pressures could mean for expansionary monetary policy. Here is what you need to know to start your week.

1. May jobs report could echo April weakness

Friday’s May jobs report will indicate whether the unexpected weakness seen in the April jobs report was a one-off or the start of a more persistent slowdown the labor market recovery.

The economy is expected to have added 650,000 new jobs in May.

Just 266,000 jobs were created in April, far short of the nearly one million expected. The economy is still more than 8 million jobs short of where it was before the pandemic.

Economists generally are still expecting strong job growth in the months to come, as the economy reopens.

Oxford Economics Chief U.S. Economist Gregory Daco said that at this point he expected 500,000 to 750,000 new jobs to be added in May, and "it may pick up."

2. ISM PMIs, Fed speakers

ISM manufacturing data is scheduled for release on Tuesday, followed by ISM services data on Thursday. Both readings are expected to be strong, but to highlight supply chain issues that are leading to shortages and higher prices.

ADP nonfarm payrolls data is due on Thursday, one day later than usual due to Monday’s holiday, along with the weekly figures on initial jobless claims.

The Fed’s beige book on the economy is due out on Wednesday and several Federal Reserve officials are scheduled to speak during the week, including Chair Jerome Powell. The Fed Chair will participate in a panel at a climate change conference on Friday together with International Monetary Fund chief Kristalina Georgieva and European Central Bank President Christine Lagarde.

Other Fed speakers during the week include Fed Vice Chairman Randal Quarles, Fed Governor Lael Brainard, Philadelphia Fed President Patrick Harker, Atlanta Fed President Raphael Bostic, Chicago Fed President Charles Evans and Dallas Fed President Robert Kaplan.

3. Wary stock market

Stock market investors will be closely watching economic data and comments from Fed officials amid ongoing concerns the central bank may begin to pull back on its massive stimulus measures as price pressures rise.

Inflation concerns have persisted for several weeks and weighed on growth names, pulling down the tech-heavy Nasdaq, which posted its first monthly decline since October.

Volatility has risen even as the S&P 500 has rebounded to less than 1% below its May 7 record high, and the index saw its smallest monthly gain in the past four in May.

The U.S. stock market will be closed on Monday for the Memorial Day holiday.

4. Euro zone inflation data

The euro zone is to release what will be closely watched flash inflation figures on Tuesday.

Inflation in the bloc is fast approaching the ECB’s 2% target, but like their counterparts in the U.S. central bank officials are arguing that this is likely temporary.

Last week ECB Chief Economist Philip Lane said there was “nearly zero connection between any spikes in prices on the reopening of the world economy and what goes into the inflation trend”.

He added that markets will take years to return to pre-crisis levels and that stimulus is still needed to secure the recovery.

The ECB is expected to discuss the prospect of slowing the rate of its bond purchases to reflect the strengthening recovery when it meets in June.

5. OPEC+ meeting

The Organization of the Petroleum Exporting Countries and allies, including Russia, a group known as OPEC+, is likely to stick to the existing pace of gradually easing oil supply curbs at its upcoming meeting on Tuesday, amid hopes for a strong recovery in demand.

Since OPEC+ decided to taper cuts by 2.1 million barrels per day in April, oil has extended its 2021 rally and is currently up over 30% and closing in on $70 a barrel.

Concerns over a possible increase in supply from Iran have capped oils gains.

Iran and world powers are negotiating on steps that Tehran and Washington must take on sanctions and nuclear activities to return to full compliance with Iran's 2015 nuclear pact.

If a deal is reached, Iran could add as much as 2 million barrels per day to global supply.

-Reuters contributed to this report