Wages, quarterly company figures, German politics

Investing.com — All eyes are on the monthly jobs report at the end of the week as investors look ahead to this month’s Federal Reserve meeting and a possible rate cut. The quarterly earnings season is winding down and was stronger than it could have been. Elsewhere, politics in Germany appear more divided after last weekend’s state elections.

1. Wages to accompany Fed’s easing plans

The week’s key economic data is the August jobs report due out Friday, and investors are looking for more clues about how aggressively the U.S. Federal Reserve will ease monetary policy later this month.

Fed Chairman Jerome Powell has signaled that it is time to cut rates. Many market participants expect this process to begin with a 25 basis point cut at the September 17-18 meeting.

However, any sign of a dramatic weakening in the labor market could rekindle the recession fears that roiled markets in late July and early August and potentially lead to more aggressive reductions.

A result in line with forecasts for a gain of 164,000 and 4.2% would likely remove the chance of a 50 basis point drop entirely, although it would take an exceptionally strong report to send markets down 25 basis points.

There are other updates on the health of the labor market ahead of Friday’s report, starting with Wednesday’s Jolts job openings report, which also includes layoff data. ADP private sector hiring data is due out Thursday, along with the weekly report on initial jobless claims.

2. Futures slightly lower on Labor Day

Wall Street is closed Monday as Americans celebrate Labor Day. Activity is likely to be muted ahead of the release of key labor market data at the end of the week.

At 04:05 ET (08:05 GMT), the contract was down 90 points, or 0.2%, down 15 points, or 0.3%, and down 75 points, or 0.4%.

Major indexes have surged back to near-record highs after expectations collapsed in early August when the Federal Reserve was expected to ease monetary policy for the first time in years.

Investors are expecting a 25 basis point rate cut at the September 17-18 meeting, but further signs of labor market weakness toward the end of the week (see above) could reinforce expectations of a bigger cut.

Futures are 100% priced for a 25bp cut in September and imply a 33% probability of 50bp. They also have 100bp of cuts priced in December and 120bp for 2025.

Also of note this week are the ISM surveys, trading and the Fed, while speeches from the Fed Governor and New York Fed President, among others, will also be widely consumed.

3. S&P 500 sees strong profit growth in Q2

The second-quarter earnings season is largely over, with only seven S&P 500 companies yet to report numbers.

According to financial data firm LSEG, the company has reported 13% profit growth in the quarter so far, the strongest profit growth since the fourth quarter of 2021.

The technology, financials and healthcare sectors led the way, all posting earnings growth of more than 20%. Only two sectors, materials and real estate, reported earnings declines.

The index has also undergone a rotation, with the broader rally providing an encouraging signal for investors concerned about concentration in technology stocks.

Overall, 61% of stocks in the S&P 500 outperformed the index last month, compared to 14% that outperformed over the past year. Charles Schwab (NYSE:) data shown.

Meanwhile, the so-called Magnificent Seven group of tech giants have underperformed the other 493 stocks in the S&P 500 by 14 percentage points since the release of a weaker-than-expected U.S. inflation report on July 11, according to an analysis by BofA Global Research.

4. Complicated German politics

The German state elections have complicated the political landscape in the eurozone’s dominant country.

Alternative for Germany (AfD) became the first far-right party to win a state election in Germany since World War II, winning the election in Thuringia and coming in a close second in Saxony.

“The results for the AfD in Saxony and Thuringia are worrying,” German Chancellor Olaf Scholz said in a statement to Reuters. “Our country cannot and must not get used to this. The AfD is damaging Germany. It weakens the economy, divides society and ruins the reputation of our country.”

With a year to go until Germany’s national elections, these results could lead to infighting within Scholz’s three-party coalition, given the apparent popularity of the AfD’s anti-NATO, anti-immigration, Russia-friendly stance.

The German government’s declining authority could also complicate European policy as the bloc’s other major power, France, continues to struggle to form a government after snap elections in June and July.

5. Crude oil drops after weak Chinese data

Oil prices fell on Monday, extending recent losses on concerns about slow demand growth in China and expectations of higher OPEC+ production.

At 4:05 a.m. ET, futures (WTI) were down 0.3% at $73.33 per barrel, while the contract was down 0.3% at $76.68 per barrel.

An official survey on Saturday showed that Chinese prices fell to a six-month low in August after a weak second-quarter performance, raising concerns about future consumption in the world’s largest crude importer.

Both Brent and WTI posted losses last week, marking the second consecutive weaker month. These demand concerns outweigh recent Libyan oil supply disruptions and tensions in the oil-rich Middle East.

Investors are also watching planned oil production increases from members of the Organization of the Petroleum Exporting Countries and allies, better known as OPEC+, next month.

Eight OPEC+ members are expected to increase production by 180,000 barrels per day in October as part of a plan to phase out production cuts.