U.S. Non-farm Payrolls and Fed Meeting Minutes In The Spotlight, Euro and Pound Await PMI Data

U.S. shares closed higher on Friday, ending a volatile week with support from a sharp jump in shares of Nike. At the close in the NYSE, the Dow Jones Industrial Average (DJI) rose 0.29 percent, to 21,349.63; the S&P 500 (SPX) added .15 percent, to 2,423.41 while the Nasdaq Composite (IXIC) edged 0.06 percent lower, to close at 6,140.42.

Closing the first half of the year 2017, the S&P 500 index scored its biggest 6-month gain since 2013 and the Nasdaq Composite’s first-half gain was its best in eight years. On Friday, the market was led by a surge in Nike shares which jumped 11 percent after the world’s largest footwear maker announced a pilot program in which it would cooperate with Amazon.com to sell their products.

Besides, upbeat economic data also contributed to a recover of stock markets in the last session of last week. Indeed, according to the U.S. Bureau of Economic Analysis, while the country’s consumer spending increased as expected in May, income rose even more than estimated.

Consumer spending, which is the single biggest source of U.S. economic growth and accounts for as much as two-thirds of economic activity, increased 0.1% in May from the prior month. Meanwhile, personal income rose by a seasonally adjusted 0.4% in May, topping expectations for a 0.3% rise.  Manufacturing activity was also reported to edge higher.

The Chicago Purchasing Management Index advanced to 65.7 last month, its highest since May 2014, from 59.4 in May. Analysts had forecast a decline to a figure of 58.0 for June.

By contrast, core PCE, a key measure of inflation the Federal Reserve considers in its interest rate decisions, dipped to 1.4% year-over-year in May, from 1.5% in the previous month. May’s reading marked the third month in a row that inflation has dipped, causing the index to retreat further from the Fed’s target of around 2%.

In the week ahead, monthly data on the state of the U.S labor market will be released by the U.S. Labor Department on Friday.  Analysts forecast a job growth of 175,000, following an increase of 138,000 in May. The unemployment rate is expected to hold steady at 4.3%, while average hourly earnings may show a rise of 0.3% after gaining 0.2% a month earlier.

Upbeat data will support the case for higher interest rates at the second half of this year and in the following months, which in turn will help strengthen the greenback. On the contrary, a weak report would add to uncertainty over the economic outlook and prompt Fed officials to delay the plans with regards to policy normalization to next year.

Before the highly-awaited Non-farm Payrolls, on Wednesday, the Federal Reserve will release minutes of its most recent policy meeting where the central bank raised interest rates as widely expected. A number of Fed policymakers will make public appearances next week, including St. Louis Fed President James Bullard, San Francisco Fed Chief John Williams and Fed Vice Chair Stanley Fischer.

In other notable data releases in the coming week, the Institute of Supply Management is to report on June manufacturing activity on Monday, and service sector activity on Thursday. The gauge for the former is expected to rise to 55.0, after inching to 54.9 a month earlier, while services index is forecast to come in at 56.6.

Turning to the Euro, which hit 13-month peak of 1.1445 on Thursday, pared gains on Friday even after data released by the Eurostat showed that consumer price inflation rose more than expected last month. The Euro zone’s inflation index rose by an annualized rate of 1.3% in June, above anticipation for an increase of 1.2%. Core index, which excludes food, energy, alcohol, and tobacco costs, jumped to 1.1% in June, after a 0.9% gain in the prior month. Analysts had expected core inflation to increase by 1.0%.

The Euro soared steeply last week, strengthened by comments from European Central Bank President Mario Draghi who on Tuesday claimed that the central bank could soon start to unwind its quantitative easing program. Draghi showed optimism over the euro zone’s economy, saying that there are clear signs of a “strengthening and broadening” recovery and those deflationary factors, which were weighing on the path of inflation, will soon be replaced by inflationary ones.

British Pound was also on a tear last week after Bank of England Governor Mark Carney on Wednesday said that the central bank might need to hike interest rates given the fact that the British economy comes closer to operating at full capacity. The pair GBPUSD surged 0.12 percent on Friday, adding to a weekly gain of more than 2.3 percent.

BOE Governor Carney will continue to make a speech next week. He is due to speak at the Financial Stability Board, in Frankfurt, Germany on Monday and at the G20 Meetings in Hamburg, Germany on Friday.

U.K economic data next week include readings on June manufacturing sector activity on Monday, a report on the construction sector on Tuesday and the service sector on Wednesday.

The manufacturing PMI is forecast to decline to 56.4 from 56.4 a month earlier, construction activity is expected to decline slightly to 55.2 from 56.0, while a survey on major sector services is forecast to inch down to 53.5 from 53.8 last month.

The Reserve Bank of Australia is scheduled to publish its latest interest rate decision on Tuesday with markets anticipating the central bank to keep rates unchanged at the current record-low of 1.5% for the tenth straight meeting since a change in August 2016. RBA’s neutral policy stance is also expected to be maintained.

On Wednesday, the Australian Bureau of Statistics is due to release first-quarter growth data, followed by trade figures on Thursday.

Australia’s largest trading partner, China, is to release Caixin manufacturing PMI on Monday.

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