Day Ahead: Top 3 Things to Watch

Aug 02, 2018

Here’s a preview of the top 3 things that could rock markets tomorrow.

1. Another Strong Jobs Report Expected

Trading direction at the start of trading Friday will be dictated by the July employment numbers. But given the recent economic data and assessment from the Federal Reserve, big market swings are unlikely.

The Labor Department will issue the report at 8:30 AM ET (12:30 GMT).

Economists expect that nonfarm payrolls rose by 193,000 last month and that the unemployment rate ticked down to 3.9%.

The employment data out so far this week has been positive. Private sector employment rose more than expected, according to ADP, and initial jobless claims rose, but less than forecast.

Wage growth could be the most interesting part of the report. It’s been pretty tame despite the large job gains.

Average hourly earnings are expected to have risen 0.3% month on month, up from a 0.2% rise in June. Compared with a year ago period, wage growth is seen steady at 2.7%.

A spike could put the Federal Reserve on notice about inflation as it considers more rate hikes. The Fed said this week it would continue to gradually raise rates should the economy continue to show "sustained expansion," supported by a strong labor market and close-to-target inflation.

Inflation, measured by the personal consumption expenditures (PCE) price index, should be at 2% this year and tick up to 2.2% in 2019, according to a Morgan Stanley (NYSE:MS) note released this week.

2. Kraft, Groupon Will Report

While the bulk of companies have reported earnings, investors will likely look to a few names expected to release quarterly reports ahead of trading Friday.

Kraft Heinz (NASDAQ:KHC) is expected to report a quarterly profit of 92 cents per share on sales of about $6.6 billion.

The top line will likely get the most scrutiny as the company has seen softness in sales in recent quarter. Investors will also be looking for signs of cost inflation.

In addition, online coupon company Groupon (NASDAQ:GRPN) will issue results. Analysts expect it to post a profit of 3 cents per share on sales of $632 million. Shares of Groupon are higher in the past three months.

Berkshire Hathaway (NYSE:BRKa) reports after the bell tomorrow. But the actual results will be overshadowed if the company decides to announce a stock repurchase plan. Berkshire loosened its stock buyback rules in July, but said it would not make a move until after its earnings were released.

3. Slight Drop in Services Activity Forecast

While the jobs report will grab the headlines, there is more economic data to consider.

The ISM non-manufacturing purchasing manager’s index (PMI) arrives at 10:00 AM ET (14:00 GMT). Economists predict a measure of 58.6 in July services activity, down from 59.1.

In addition, Markit’s measures of July manufacturing and services economic activity come in at 9:45 AM ET (13:45 GMT).

The Markit composite PMI is seen coming in at 55.9 and the services PMI is forecast at 56.2. That would reflect an unchanged reading for both from the month before.