This week begins and ends with critical economic reports, which come against the backdrop of rising expectations that the Federal Reserve is approaching the point at which it will start reducing its monetary easing. Those expectations sparked a major sell-off of U.S. Treasurys last week. That sell-off is expected to continue, according to a note from Goldman Sachs.
Global manufacturing data is disclosed Monday, with numbers from Asia, Europe and North America signaling the condition of the world’s real economy. Last week, the Organization of Economic Cooperation and Development, or OECD, cut its forecast for global economic growth to 3.1 percent for this year and to 4 percent for next year. The laggards will be OECD members, the organization said, while the leaders will be nonmembers.
“The global economy is strengthening gradually, but the upturn remains weak and uneven,” OECD Secretary-General Angel Gurria said. “Supportive monetary policies, improving financial market conditions and a gradual restoration of confidence are at the root of the recovery.” Gurria also used the release of the OECD forecast to insert himself into the debate about whether fiscal austerity and sovereign-debt reduction are desirable for weak economies. “The fiscal adjustment of the last few years is beginning to pay off,” he said. “Several countries are close to stabilizing their government debt-to-[gross domestic product] ratios and ensuring a gradual decline in the indebtedness over the longer term.”
The week concludes with the U.S. government’s much-anticipated May unemployment report, which investors, policymakers and business leaders will watch for signs that the U.S. recovery, modest as it has been, is at least continuing. If there is a decline in the current 7.5 percent jobless rate, analysts will scrutinize the numbers to see if the improvement reflects more hiring or less labor-force participation. If there is a gain, there will be a hunt for something or someone to blame: corporations sitting on historically large cash hoards instead of hiring or the effect of both the payroll-tax hike and the sequester.
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Thursday’s economic news will be dominated by the head of the euro-zone’s central bank, Mario Draghi, who will disclose whether the European Central Bank will cut its main lending rate for a second time in two months or hold it at the 0.5 percent level the ECB reduced it to in May. Many analysts expect the latter. Close attention also will be paid to purchases of asset-backed securities, particularly whether they will be made by the ECB or the European Investment Bank. At the moment, the 17-member monetary union’s collective economy is declining by 1 percent.
“After cutting interest rates last month and hinting that more support might be to come, we suspect that the ECB will disappoint markets at its forthcoming policy meeting and press conference,” said Jennifer McKeown, senior European economist with Capital Economics. “President Draghi is likely to say again that further interest-rate cuts are possible. But he will probably voice concern about the potential side effects of negative deposit rates, denting hopes of imminent action on that front. Meanwhile, he is likely to state that any purchases of asset-backed securities would be made by the European Investment Bank rather than using the unlimited firepower of the central bank.”
Below are entries on the economic calendar for June 3-7. All listed times are EDT.
All day -- Auto sales last month are expected to have risen, pushing the seasonally adjusted annual rate of light-vehicle sales up from 14.9 million in April and 13.9 million in May 2012 as the U.S. auto market continues to rebound from the 2009 industry crisis. An average of three leading auto-market intelligence providers -- TrueCar.com, Edmunds.com and Kelley Blue Book -- suggests the SAAR for will come in at 15.1 million on the sale of 1,423,810 units. J.D. Powers and Wards Auto forecast 15.2 million, while UBS Securities offers a more bullish figure of 15.3 million. One thing is certain, the numbers will be higher than it was in April.
8:30 a.m. -- Chicago Fed National Activity Index for April. In March, this metric, reflecting data from 85 economic indicators, rose to 0.23.
10 a.m. -- Institute for Supply Management manufacturing index for May. Analysts polled by Thomson Reuters expect, on average, the metric to slip to 49.7 from April’s level of 50.
4 p.m. -- International Monetary Fund Director Carlo Cottarelli addresses the Peter G. Peterson Institute for International Economics on the outlook for fiscal adjustment in advanced economies.
5 p.m. -- Charles L. Evans, president of the Federal Reserve Bank of Chicago, addresses a meeting of the CFA Society.
Japan -- The government releases its final revision to a batch of leading indicators.
Manufacturing reports from Asian and European countries.
7:45 a.m. -- ICSC-Goldman chain store sales.
8:30 a.m. -- Balance of trade. The U.S. trade deficit for April is expected to be about $41 billion, higher than March’s $38.8 billion.
Australia -- Reserve Bank of Australia issues its interest-rate decision.
Australia -- GDP.
7 a.m. -- Wall Street will be watching to see if the latest Mortgage Bankers Association Mortgage Index of mortgage applications continues the previous report’s 7.3 percent decline.
8:15 a.m. -- ADP Employment Change report. Analysts polled by Thomson Reuters expect, on average, 165,000 jobs were created in May, sharply higher than April’s level of 119,000.
8:30 a.m. -- Unit labor costs for the first quarter are expected to rise 0.6 percent, according to a poll of analysts by Briefing.com.
10 a.m. -- ISM nonmanufacturing index for May is expected to rise to 53.5 from April’s 53.1, according to a poll of analysts by Briefing.com.
10 a.m. -- Factory orders of durable and nondurable goods is expected to have risen 1.5 percent in May, compared with a 4.9 percent decline in April.
Euro zone -- The revised calculation of the euro zone GDP in the first quarter is expected to show a 1 percent decline, according to a survey of analysts by Thomson Reuters.
Nonmanufacturing reports from Asian and European countries
7:30 a.m. -- Challenger report on planned job cuts.
8:30 a.m. -- Weekly jobless claims.
Great Britain -- Bank of England’s interest-rate decision is released.
Euro zone -- ECB releases its interest-rate decision, followed by a news conference with ECB President Draghi. Analysts polled by Thomson Reuters do not expect a change in the bank’s current main lending interest rate of 0.5 percent.
8:30 a.m. -- May nonfarm unemployment report. Analysts polled by Thomson Reuters expect, on average, that 168,000 jobs were created in May, up slightly from April’s level of 165,000. Briefing.com expects 170,000 jobs were created last month and that the nation’s unemployment rate remains 7.5 percent.
Sources: Central banks, European Commission, Briefing.com, Reuters, Market News, Financial Times, Wall Street Journal, Capital Economics, Barclays, Bank of America Merrill Lynch.