Important Developments to Follow This Week

The minutes of the Fed’s June meeting, due Wednesday alongside Friday’s jobs report, will be the highlights of the holiday-shortened week. Recession fears persist. U.S. stocks are entering an uncertain third quarter after their worst quarter since the 1970s as the Fed tightens monetary policy rapidly to curb record inflation. Meanwhile, the Reserve Bank of Australia is likely to raise interest rates by half a percentage point at its meeting on Thursday. Here’s what you need to know as we head into the new week: 1. U.S. jobs report The latest economic data adds to signs that the economy is cooling amid the Fed’s aggressive tightening. Friday’s nonfarm payrolls report will be closely scrutinized for the performance of the labor market. Economists expect jobs to have increased by 270,000 in June. That’s down from the previous month’s 390,000, but it’s still a strong number. The unemployment rate is expected to remain at 3.6%, indicating strong demand even as the economy cools. Average hourly earnings are likely to have risen by 5% on an annual basis. The weaker-than-expected jobs report could fuel recession fears and support the argument for a more leisurely pace of rate hikes. 2. Fed minutes The Fed is also expected to hike by 75 basis points at its July meeting, but the outlook for September is less clear. As markets continue to focus on recession expectations, the minutes of the June meeting, to be released on Wednesday, will give investors an idea of what policymakers are thinking about the interest rate cycle. Meanwhile, the European Central Bank (ECB) will release its minutes on Thursday, announcing that it is considering making its first rate hike since 2011 in July, as inflation in the eurozone is at record levels, and that even bigger increases could occur in September. 3. US economic data On Wednesday, the US JOLTs job openings report for May will be released, with job openings expected to have fallen from 11.4 million in April to 11 million. The lack of suitable workers to fill these positions has led to wage increases and fueled inflation. In the US, factory orders, initial jobless claims and consumer credit data will also be released, as well as the ISM services PMI data for June. Last week, the ISM manufacturing PMI data indicated a slowdown in both input prices. Many officials from the Fed will be appearing this week. New York Fed President John Williams will speak on Wednesday and Friday. Fed Governor Christopher Waller and St. Louis Fed President James Bullard will also speak. 4. Stock markets enter the third quarter Wall Street's three main indexes ended Friday with big gains. Stock markets, which had the worst first half they have seen in decades, recovered on the first trading day of the third quarter, but closed the week with losses. Market participants have important events ahead of them that could shape the market in the coming months. Investors will turn their attention to Friday’s employment report ahead of U.S. inflation data due next week, which will influence decision-making at the Fed’s July 26-27 meeting. The second-quarter earnings report is due the week of July 11 and will show whether companies are meeting forecasts despite rising inflation and growth concerns. 5. RBA hikes rates Market watchers expect the Reserve Bank of Australia (RBA) to hike rates by another half-point. Expectations are being revised higher after governor Philip Lowe made a larger hike last month, against expectations of 25 basis points. Rising energy and labor costs, as well as a weaker Australian dollar, are also driving inflation. Russia’s war in Ukraine and coronavirus restrictions in China, Australia’s largest trading partner, are also adding to inflation pressures.