What to Watch in the Week Ahead and on Tuesday, Sept. 2

Fri Aug 29, 2014 3:10pm EDT

(The Day Ahead is an email and PDF publication that includes the day's major stories and events, analyses and other features. To receive The Day Ahead, Eikon users can register at . Thomson One users can register at RT/DAY/US. All times in ET/GMT) WEEK AHEAD Equity and bond markets are likely to see more action next week as traders return from vacation, but the focus will still be on weak euro zone data and the European Central Bank meeting, which should keep driving funds toward the U.S. bond market and U.S. dollar. More investors expect the euro to keep weakening and boosting the dollar. The equity markets sit at record levels, but with the U.S. Federal Reserve believed to be holding rates steady for some time, a strong jobs report should help equities rather than hurt them.

Data next week is expected to show a seventh straight month of job gains above 200,000, steadily expanding manufacturing and services sectors and a bullish auto industry. The U.S. Labor Department is expected to report on Friday that non-farm payrolls increased 220,000 in August, after rising 209,000 in July. The unemployment rate is forecast slipping to 6.1 percent from 6.2 percent. The department is also expected to report on Thursday that its services industry index slipped to 57.6 in August from 58.7 in July. Automakers are expected to report on Wednesday that sales in August raced to an annual pace of 16.60 million units from 16.48 million units in July. The Commerce Department is expected to report on Thursday that the trade deficit widened a bit to $42.2 billion in July from $41.5 billion in June. Investors keen to hear all sides of the debate over when and how fast the Fed should raise rates will get their fill this week. The two policymakers who cast the only dissents so far this year, Philadelphia Fed chief Charles Plosser and Minneapolis Fed President Narayana Kocherlakota, are likely to paint competing views of the economy's need for continued stimulus. Fed Board Governor Jerome Powell, Cleveland Fed's new President Loretta Mester, the Dallas Fed's hawkish Richard Fisher and the Boston Fed's dovish Eric Rosengren are also scheduled for public speeches. The Fed meets on Wednesday to adopt the Liquidity Coverage Ratio, which bank regulators first proposed in October. The rules forces banks to hold enough easy-to-sell assets to meet their cash needs for 30 days, in case the next crisis hits. It's a joint rule with the FDIC and the OCC. The Fed will also vote on the amount of margin buyers and sellers of uncleared swaps need to put up. This is a rule that was first proposed in 2011, but the Basel Committee has since intervened and come out with guidelines last year. Undoubtedly, the new rules will be based on those guidelines. Banks keep a very close eye on the cost of margin to see how popular these products are with hedgers and speculators. Luxury homebuilder Toll Brothers has stayed ahead of its peers in a choppy U.S. housing market recovery as its affluent buyers are less affected by rising home prices and interest rates. While other U.S. homebuilders such as D.R. Horton and PulteGroup reported a less-than-stellar spring selling season, Toll is largely expected to have performed better in the season, which runs mid-April through mid-June and is to builders what the holiday season is to U.S. retailers. With recent housing data suggesting that the recovery may be picking up steam again, investors will be looking for comments on Toll's capital investment plans for the rest of the year when it reports third-quarter results on Wednesday.

Tax preparer H&R Block is expected to report a first-quarter loss on Wednesday, according to StarMine data. H&R Block's first and second quarters are seasonally weak, as it is the off-season for U.S. tax filing. Investors would be interested to know about the sale of the company's banking unit, announced in April.

Demand from miners for maintenance work has picked up for equipment maker Joy Global, after its mining customers struggled with a coal glut. When the company reports third-quarter results on Thursday, investors will be looking for commentary as to whether miners have started to spend on mining equipment.

Engine maker Navistar is expected to post third-quarter results on Wednesday. Analysts on average expect a loss of 66 cents per share on revenue of $2.97 billion, according to Thomson Reuters I/B/E/S. Verifone, a maker of credit card swipe machines, is expected to report third-quarter earnings above analysts' estimates on Thursday, according to StarMine. The company has benefited from retailers upgrading their equipment to add new security features. Investors will look for commentary on the addition of near-field communications, expected in Apple Inc's iPhone 6, which will help the device connect with payment terminals or ticketing systems. A status conference is scheduled for Thursday in a lawsuit by the U.S. Commodity Futures Trading Commission accusing the Royal Bank of Canada of running a "trading scheme of massive proportion" to gain lucrative Canadian tax benefits. The CFTC's civil lawsuit, scheduled to go to trial on Nov. 3, alleges that a small group of senior RBC employees created and managed a "wash trading" strategy in which they improperly coordinated to allow subsidiaries of the bank to buy and sell stock futures without taking a position in the market. The hearing is before U.S. District Judge Alvin Hellerstein in Manhattan.

Two major economic events are coming up in Canada next week, with an interest rate decision from the Bank of Canada on Wednesday and the August employment report on Friday. The central bank is widely expected to keep rates at 1 percent and maintain its cautious tone in its monetary statement. The employment report is likely to show that jobs growth remains lackluster, with the economy adding just 10,000 jobs last month and the unemployment rate holding at 7 percent. The data may get additional scrutiny as July's jobs report had to be restated by Statistics Canada due to an error. Rounding out the week, investors will get July's trade balance data, which is due on Thursday, with the trade surplus expected to narrow after hitting a two and a half year high in June. Mexico's PMI data on Monday will show how factory sentiment fared in August after dipping to a nine-month low in July as output growth slowed. On Friday, data will show whether consumer confidence rebounded in August after falling last month to a five-month low amid a sluggish recovery in domestic demand. The central bank is also expected to keep its interest rate at a record low of 3 percent on Friday, as policymakers that bet a spike in inflation is temporary and look to underpin growth.

TUESDAY, SEPTEMBER 2 The Institute for Supply Management is expected to report that its national factory activity index dipped 56.9 in August from 57.1 in July.

(U.S. and Canadian markets will remain closed on Monday, September 1, for Labor Day.) (Compiled by Ayesha Sruti Ahmed in Bangalore; Editing by Kirti Pandey)

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