Report (Premium Edition) Updated 06-28-2021

Tip: Use this as a quick guide on the short-term direction (1-2 weeks) of key markets. It is not a signal to buy or sell, just to show the trend. This is a quick cheat sheet to know the trend and help understand what is happening with the markets in the short term. I started making this section years ago because once had a client that would call me nearly every day asking the direction of the markets.

Dow 34433.85 0.69% 237.02 34501.02 34314.8 Bull
S&P 500 4280.69 0.33% 14.21 4286.12 4256.97 Strong Bull
Crude (WTI) 73.92 -0.07% -0.054 74.421 73.79 Bull
Gold 1777.49 -0.19% -3.45 1785.61 1770.5 Bull
10 Year 1.516 −1.00% −0.015 1.536 1.512 Bear
Bitcoin/USD 33969.15 3.76% 1230.4 35191.85 32394.05 Bear
US Dollar Index 91.773 −0.04% −0.038 91.895 91.699 Bull
VIX 16.2 3.71% 0.58 16.31 16.03 Bear

Tip: Use this section to know the performance of various sectors, weight portfolios, or look for trades. Modern portfolio theory stresses the importance of diversification, but recently several sectors like technology have outperformed others like utilities. This is also a way to narrow the sectors to find investment opportunities.

REIT Alert: Due to Covid-19, there is a large percentage of people that have not paid rent or mortgages. We are very worried about the effect it could have on real estate investment trusts (REITS) value. Even though the sectors may trending bullish, we believe that REITs could have a significant drop in value.

Sector Name 5-Day Return 1-Month Return 3-Month Return YTD Return YTD Return vs S&P 500 3-Year Return 5-Year Return Trend
 Basic Materials 2.40% -4.30% 6.70% 15.80% 1.10% 46.40% 95.60% Bear
 Communication Services 3.40% 5.00% 11.50% 20.10% 5.40% 74.30% 68.00% Bull
 Consumer Cyclical 3.40% 4.10% 8.20% 13.80% -0.90% 92.40% 181.50% Bull
 Consumer Defensive 2.00% -1.50% 4.20% 5.80% -8.90% 45.40% 52.30% Bear
 Energy 6.70% 9.50% 15.50% 53.10% 38.30% -13.70% -0.20% Bull
 Financial Services 5.30% -0.10% 9.30% 26.50% 11.80% 43.70% 122.00% Neutral
 Healthcare 2.30% 3.40% 10.30% 11.10% -3.60% 61.10% 111.10% Bull
 Industrials 3.40% -0.10% 6.30% 16.40% 1.70% 52.00% 107.30% Bear
 Real Estate 1.80% 4.60% 14.00% 22.70% 8.00% 43.30% 48.70% Neutral
 Technology 2.50% 5.80% 12.70% 11.50% -3.20% 124.40% 297.10% Bull
 Utilities 0.70% -0.70% 1.90% 3.80% -10.90% 33.70% 49.70% Bear

Key Drivers for the Week of June 28, 2021

TIP – This is a 1-minute brief bullet-point summary. It is a tool that gives investors and financial a fast and simple list of what to watch for and talking points for the week.

  • Core central banks talking about QE, but rate hikes a long way away
  • U.S. focus: jobs, ISM, PMIs, vehicle sales, housing, confidence data due
  • Fedspeak from Williams, Quarles, Barkin, and Bostic would alter the outlook 
  • Canada GDP, trade, building permits awaited; markets on holiday Thursday
  • Japan deluge: BoJ report, unemployment, retail sales, production, Tankan
  • China manufacturing PMIs; Korea production and Hong Kong trade awaited
  • Eurozone ESI confidence, manufacturing PMI, CPI, unemployment due
  • Germany releases HICP, jobless numbers, and retail sales
  • ECBspeak: Lagarde, Weidmann, Guindow, de Cos, Villeroy to stick to script
  • UK has money supply, final Q1 GDP, current account, final manufacturing PMI
  • Switzerland has KOF leading indicator, manufacturing PMI, and CPI

Stocks & ETF Watch List

Tip: Use this section to find stocks and ETFs to add value to your portfolio by increasing the alpha (return) and decreasing beta (beta). Our list is updated monthly to help provide our readers with timely insights. Readers should do their own research before making any investment. In order to make our report easier to read, we are now including the stocks as lists for readers in separate posts.

  • Inflation Stock Picks: List of stocks that we think should perform better in a rising inflation environment. Click here
  • Auto Parts Stock Picks: Auto parts companies are likely to see their stocks rise as the average age of cars and light trucks increased from 11.9 years in January 2017 to 12.2 years in January 2021, according to new data from IHS Markit. Below are the top auto parts companies that investors should buy now before the profits roll in. Click here.
  • Solid Picks: This group of stock/ETF picks is likely to experience growth and perform well into the near future. Click here.
  • Dividend Stocks: List of stocks that have excellent dividends and business performance. Click here.
  • Dividend Growth Stocks: List of stocks that have a history of growing dividends. Click here.
  • Dividend ETFs Picks: This list of ETFs is selected for their ability to pay dividends. Click here.
  • Dogs of the Dow: This list of DOW stocks based on H. G. Schneider’s Article in the Journal of Finance in 1951 that used the price-earnings ratio. The general idea is that blue-chip companies that pay a dividend are more likely to withstand an economic downturn. Click here.

Week Ahead: All Good Things Must End Someday, but Not Yet

On June 28, 2021

The major currencies have been seeing narrow ranges for the most part so far in early week trading, with the pound being something of an exception in posting moderate gains. Cable rose above Friday’s high in making 1.3940, up from Friday’s closing levels near 1.3875. The UK currency also lifted above its Friday highs versus the euro.

There was sensational news out of the UK over the weekend, with Health Secretary Matt Hancock resigning after being caught flouting his own lockdown rules, but the news boosting the pound was a statement from Hancock’s replacement, Sajid Javid, that he is expecting to greenlight the full reopening of the UK economy on July 19.

The media also talked up the close relationship Javid and UK Chancellor Rishi Sunak. Data out of the UK is also continuing to show that while new Covid cases continue to surge among younger unvaccinated adults, driven by the Delta variant, this is not being accompanied by a rise in hospitalizations and mortality, which remain at basement levels.

However, caution has been prevailing in stock and commodity markets amid a spike in Covid cases across East Asia, driven by the highly transmissible Delta strain. Record high cases are being seen in Indonesia, Malaysia is set to extend lockdown, and Thailand announced new restrictions. Sydney in Australia is also in lockdown.

The dollar has come back, but still on a bearish trend.

Treasuries lost ground on Friday after choppy trading since the FOMC’s pivot announced on June 16. The unwinding of the flattening trade weighed on the longer maturities. The 30-year bond sold off sharply on Friday with the 30-year climbing over 5 bps to 2.149%. The 10-year was 3.2 bps cheaper at 1.52%. The 2-year was fractionally richer at 0.266%. The curve widened 3 bps to 125 bps on Friday and was at 118 bps the Friday before. Stocks closed last week on a mixed footing with a reflation trade boosting the Dow, while the pop in rates weighed on the NASDAQ. 

The stronger-than-expected rebound in the global economy and the faster than projected acceleration in inflation has caused central bankers around the world to start to discuss withdrawal of accommodation. In fact, several emerging market nations have already begun lifting rates. However, liftoff from the FOMC, ECB, BoE, and BoJ is still quite some time in the future.

Sources reported some of the heavy selling in Treasuries was from rate locking ahead what could be a flood of bank issuance this week after the major banks easily passed very onerous stress tests with the major banks having sufficient capital to cover $470 bln in losses. The Fed removed pandemic restrictions last Thursday, also opening the door for dividend payments and share buybacks. Look for positive movements on financial and bank stocks.

As Fed Chair Powell has indicated, the recovery has been uneven, and sufficient downside risks remain, not to mention noisy data, to keep policymakers cautious as they discuss unwinding QE ahead of an eventual tightening, especially as there have been signs of a slowing in y/y inflation. Since the policy path is dependent on the economic data, releases will be closely monitored. But while none of the upcoming reports will alter officials’ outlook, each will add to the body of evidence to guide the decisions.

The Infrastructure Bill appears to be making traction after Biden and key Democrats threatened to torpedo it didn’t contain the $1 trillion-plus spending of additional “green” and special projects. As it gets closer to passing, expect “inflation” to become an even bigger factor.

We are currently facing debt to GDP ratio of 128.12% which is causing record inflation. However, the scary thing is that by 2025 with only the current level of spending, we are looking at 189% debt to GDP and $50 trillion in national debt.

The focus this week will be on the jobs report on Friday, where we expect non-farm payrolls to rise 550k, versus the previous 559k increase. Other data on the week include June consumer confidence, along with the June ADP employment survey, June manufacturing ISM, housing data, and the May trade report.


This week’s U.S. slate includes many of the top-tier releases crucial for the FOMC’s outlook. Of course, the June nonfarm payroll report dominates, the manufacturing PMIs, vehicle sales, constructions spending, home sales, and trade will also be part of the calculus. We are currently projecting a solid 7.8% rate of Q2 growth with the upside limited for now thanks to headwinds from supply and capacity constraints, labor market issues, alongside elevated input costs. There is another dose of Fedspeak, but it won’t impact much now that the dot shift has been digested, and as policymakers have made their point that the dual goals are still far from being met, while also soothing inflation fears.

The jobs report (Friday) is the central focus and we project a 550k June increase, after gains of 559k in May and 279k in April. We also see factory jobs rising 35k, with the jobless rate sliding to 5.6%. Hours-worked is assumed to rise 0.4%, while the workweek holds steady at 34.9 for the fourth month, and average hourly earnings edge up 0.2%. In spite of the strong recovery, job growth has been more moderate than would have been expected thanks to various headwinds, and data in line with our projections would reflect some of that.

Also key for the outlook on the economy will be the ISM manufacturing release (Thursday), expected to be little changed at strong 61.0, along with the June reports from the Dallas Fed (Monday) and the Chicago PMI (Wednesday), with the former expected to dip to 31.0, while the latter drops to 66.0. Light vehicle sales (Thursday) for June are seen slipping to a 16.9 mln pace due to tight inventories and rising prices, rather than weak demand. Construction spending (Thursday) is projected to increase 0.6% in May.

Though all the housing measures have climbed to 14-year highs, construction spending is increasingly constrained by capacity limits for labor and land in the residential market, while nonresidential and public construction continues to contract amid geographic and skill differentials capping labor migration between components. The various home sales reports, including those from S&P Case Shiller (Tuesday), the FHFA (Tuesday), and pending home sales (Wednesday) will further highlight the current dynamics of strong demand outpacing supply, leading to record prices. Consumer confidence for June (Tuesday) is expected to rebound to a 1-year high of 117.5 thanks to the strength in the economy and as inflation concerns abate a bit.

The Fedspeak calendar includes several current and 2022 voters, but none of them are named Powell or Clarida, so they will have limited power to impact the markets. NY Fed’s Williams and Governor Quarles highlight (Monday). Williams takes part in a BIS panel discussion while Quarles speaks on a central bank digital currency. Barkin and Bostic are current voters. Barkin will speak on inflation risks (Monday), takes part in a Market News event (Tuesday), and speak with the Hispanic Chambers of Commerce (Wednesday). Bostic discusses regionalism (Wednesday), and takes part in a Habitat for Humanity panel ( Thursday).

Earnings reports have thinned measurably with only a few on tap. FactSet Research is due Tuesday, Micron Technology Wednesday, with Walgreens Boots, and McCormick on Thursday.

Canada’s week will be interrupted by a holiday on Thursday. April GDP will be the key release, along with the trade balance. GDP (Wednesday) is seen falling -0.8% in April (m/m, sa) amid the increase in lockdowns due to surging infections. The economy grew a strong 1.1% in March. The trade balance (Friday) should show a small uptick in the surplus to C$0.7 bln in May from C$0.6 bln in April with modest rebounds in exports and imports. The trade balance was in deficit from June 2019 through December 2020. There is ample risk around this forecast, as semi-conductor chip shortage continued to impact exports and imports in the auto sector while commodity prices rose. Building permits (Friday) are penciled in at 1.0% in May after the -0.5% dip in April — the housing sector remains robust. The industrial product price index for May is due on Wednesday. Markets are closed on Thursday for the Canada Day holiday.

There is nothing from the Bank of Canada this week, with the next event the release of the Q2 Business Outlook Survey on July 5. The next rate announcement is on July 14, where we are expecting a further reduction in QE as the bank unwinds the emergency policy setting amid a recovering economy. The bank is expected to maintain its 0.25% rate setting. Another C$1.0 bln taper is seen in July, leaving QE totals at C$2.0 bln. A follow-up cut of C$1.0 bln to C$1.0 bln in QE is seen around the turn of the year. The BoC tapered its QE program to C$3.0 bln from C$4.0 bln in April but held it steady at the June announcement. Notably, the BoC has taken tangible steps to trim emergency accommodation, while the Fed is just getting started talking about tapering.


It is a fairly busy regional docket this week that brings Japan’s month-end burst of data, including May unemployment, retail sales, industrial production, manufacturing PMI, and consumer confidence. China’s calendar features the official June CFLP manufacturing PMI, along with the June Caixin/Markit manufacturing PMI. Elsewhere, the usual mix of trade, production, and prices are on tap. There are no regional central bank meetings scheduled this week.

In Japan, the BoJ releases its Summary of Opinions from June 15-16 MPM (Monday). May unemployment (Tuesday) is seen steady at 2.8%, though having edged back up from the 0.3 percentage point drop to 2.6% in March amid diverging impacts of ongoing fiscal support against covid restrictions. The job offers/seekers ratio (Tuesday) should be unchanged at 1.09, having ranged from 1.10 to 1.09 since January. It was at 1.51 in January 2020 before the pandemic hit. May retail sales (Tuesday) are expected to post a 9.8% y/y pace for large retailers, the second month of growth, though slower than the 15.5% y/y previously. Sales have generally been in contraction since mid-2018. Preliminary May industrial production (Wednesday) is penciled in rising 1.5% after jumping 2.9% in April. The June Tankan (Thursday) is forecast to improve to 14 from 5 for large manufacturers, and to 7 from -1 for large non-manufacturers. The June manufacturing PMI (tentatively Thursday) likely slipped to 52.0 from 53.0. June consumer confidence (Thursday) is estimated little changed at 34.0 from 34.1. Confidence has remained subdued since the start of the year, staying in the low 30s for much of that time, after plunging to 21.3 in April of 2020, as the pandemic ramped up and additional states of emergency were ordered. June auto sales are due Thursday as well.

China official CFLP June manufacturing PMI (Wednesday) is expected to improve to 51.3 from 51.0. The PMI has remained above the 50 boom/bust line since February of 2020, when it fell to 35.7 as Covid kicked off. But, it has been little changed in the 51 area since the start of the year as the strength in the recovery has been slowed, in part as the PBoC has tightened policies. The index was at 50.9 last June. The Caixin/Markit manufacturing PMI (Thursday) is expected unchanged at 52.0 in June, tying May for the best reading since December’s 53.0. This would be a 14th straight month of expansion. It was at 51.0 a year ago.

Elsewhere, South Korea May industrial production (Wednesday) is expected to rise to an 18.0% y/y pace of growth from the prior 12.4% increase. The June trade report (Thursday) should see the surplus widen to $6.0 bln from $2.9 bln in May. Exports and imports have been growing robustly as world trade has continued to pick up. Hong Kong’s trade deficit (Monday) is expected to narrow to HKD -30.0 bln from HKD -31.8 bln. Like Korea, exports and imports have been strong. May retail sales (Wednesday) are seen rising to a 12.5% y/y rate from 12.1% on a value basis, and 11.0% y/y from 10.9% on a volume basis.

Thailand May manufacturing production (Monday) is penciled in jumping to a 24.0% y/y rate of growth from the 18.5% in April. This would be a fourth straight month of growth after being in contraction for 22 straight months until March. May trade (Wednesday) should see the deficit widen to -$1.4 bln from -$1.3 bln previously. Current account figures are due Wednesday as well. Indonesia June CPI (Thursday) is anticipated to have ticked up to 1.8% y/y from 1.7%. Singapore June PMI (Friday) should dip to 50.6 from 50.7.

Australia’s calendar is light, but features the May trade report (Thursday). The surplus is expected to narrow slightly to A$7.5 bln from A$8.0 bln in April. The surplus was at A$5.8 bln in March. May housing finance figures (Friday) are expected to fall -1.0% after rising 3.7% in April. The RBA meets on July 6 RBA, though no changes are expected to the 0.10% OCR. RBA governor Lowe will participate in a panel discussion in Sydney (Tuesday) where market participants will watch for clues on the policy outlook.

In New Zealand, the economic docket is empty this week, though markets will begin looking ahead to the RBNZ’s next meeting on July 14. No change to the 0.25% rate setting is expected. However, the Fed’s hawkish tilt has rattled nerves on the outlook for the RBNZ and RBA, with worries that the banks may begin their own public discussion of tapering.


Eurozone: this week’s data round is likely to add to signs that economic activity is accelerating faster than expected, with staff shortages now adding to supply constraints in limiting overall output growth amid a strong rebound in demand. Official unemployment rates remain higher than before the crisis though, and the true impact of the pandemic on labor markets will only become apparent once wage support schemes have been phased out. For now, then the strong June data round is unlikely to shift the ECB’s official stance, but if releases over the summer do not show a significant change, the central bank is likely to confirm that tapering is underway at the September meeting.

Eurozone ESI economic confidence (Tuesday) is expected to jump to 116.8 (median 116.1) from 114.5. Preliminary consumer confidence data already showed a clear improvement and national surveys indicate a further broadening and strengthening of the recovery across countries and sectors. The final reading for the Eurozone Manufacturing PMI (Thursday), should leave the headline at a very strong 63.1 and highlight once again that price pressures are increases as demand rebounds, with supply chain constraints and staff shortages creating bottle necks and lengthened delivery times.

Import price inflation has accelerated sharply with commodity prices and companies are increasingly able to pass on higher costs in this environment. At the same time the gradual reopening of the services sector has added to price pressures, although after the jump higher in May there should be a slight dip in headline rates in June. We expect German HICP (Tuesday) to fall back to 2.2% (med 2.1%) from 2.4% in the previous month, while Eurozone CPI (Wednesday) is expected to come in at 1.9% (median same) in the preliminary reading for June – down from 2.0% in May.

Base effects and special factors are likely to boost the headline later in the year, but whether these temporary factors translate into more lasting price pressures will largely depend on wage demand going forward. German jobless numbers (Wednesday) are expected to show a drop of -18 (median -16K) in June, which would bring the sa jobless rate to 5.9% (median same) from 6.0%. The more backward-looking Eurozone unemployment rate (Thursday) is expected to remain unchanged at 8.0% in May. Despite survey reports of staff shortages in some sectors, there is a lot of slack in the labor market still, while wage support schemes are still distorting the picture.

The true impact of the pandemic on the overall situation will only become apparent once these have been phased out, but we see some risk that structural unemployment has shifted higher thanks to the pandemic so that wages could start to pick up earlier than overall labor market data suggests. In any case, the improvement in overall activity is starting to also show up in employment numbers, which together with pent-up demand should keep consumption underpinned. Against that background see a sharp rebound in German retail sales (Thursday) after the correction in May.

The calendar also has national inflation numbers for France and Italy, German import prices, and plenty of ECB speakers, including Weidmann, Guindos, de Cos and Villeroy. Weidmann’s comments in particular will be watched carefully for signs of dissent on tapering and asset purchases going forward. ECB’s Lagarde is scheduled for the end of the week and likely to stick to the official line for now.

U.K.: the BoE’s cautious messaging following its June Monetary Policy Committee meeting last week affirmed that the central bank is happy to remain on hold with a firmly dovish stance for now. Policymakers are particularly focused on the labor market and to what extent and how quickly furloughed workers will be re-employed once the government’s pandemic wage-support scheme ends at the end of September. The statement also repeated that the central bank expects inflationary pressures to be transitory and that inflation expectations remain well-anchored, and summed up by saying that it does not intend to tighten monetary policy at least until there is clear evidence that “significant progress is being made in eliminating spare capacity and achieving the 2% inflation target sustainably.”

Markets are focusing on recovery prospects, which remain strongly positive — the BoE last week upwardly revised its 2021 GDP growth projection to 5.5% from 4.35% in May — although momentum has been zapped somewhat, partly with the government has delayed the full reopening of the economy by a month, to July 19. New Covid cases have risen quite sharply over the last several weeks, too, and accelerating quite sharply over this week, but the link between infection and hospitalization/mortality has been smashed due to the high level of vaccinations in the UK. The vast majority of these new cases, moreover, have been accounted for by younger, unvaccinated adults who are at little risk of developing serious illness from the virus.

The calendar this week brings monthly lending and money supply data (Tuesday), final Q1 GDP and currency account data (Wednesday), and the final June manufacturing PMI data (Thursday). The data, except the backward-looking GDP figures, should affirm robust activity. The headline manufacturing PMI is expected to come in at an unrevised 64.2 in the headline reading.

Switzerland: The calendar this week features the KOF leading indicator for June (Wednesday) and June CPI, May retail sales, and the June manufacturing PMI report (all due Thursday). The KOF indicator is expected to scale to a new high at 145.2 in the headline reading. June CPI is expected to tick higher, to 0.7% y/y, up from the 0.6% rate in May.

Economic Data Calendar

Complete Calendar: Click here to view the complete calendar of all the events.

We face a heavy release slate as we enter July, culminating with the June jobs report, where we expect a 550k nonfarm payroll rise with a jobless rate drop to 5.6% from 5.8%. The trade deficit is expected to widen in May, but remain below the all-time high in March. Factory orders will receive a May lift from Boeing orders, while construction spending rises modestly in the face of capacity constraints. Both consumer confidence and its inflation expectations component should remain near recent cycle-highs. We expect the ISM to remain elevated in June, though we may see a further unwind of an 18-year high in March.

Week of June 28

The final Q1 GDP report, combined with the personal income and consumption data through May, have solidified our Q2 GDP estimate around a 7.8% figure. We continue to see the pace as an effective “speed limit” for growth from capacity constraints, given the massive demand surge through an April peak that prompted widespread shortages of materials and a drop in the aggregate I/S ratio to a 9-year low of 1.25, before an assumed uptick to 1.26 in May. The income data revealed a flat May consumption figure following an upwardly-revised April level that exacerbated the April “peaking” pattern.

Reports of further declines in vehicle sales through June due to tight inventories has reinforced our assumed -0.4% retail sales drop in June, following the -1.3% May decline. We expect retail sales drops through the three months of Q3 as spending rotates to services, but the recovery in the service component of consumption was more limited than we had expected in May. The savings rate should keep falling from the 12.4% level in May, and we assume 3.0% Q3 growth in real consumption, but we have yet to see how quickly the service sector will rebound, or how willing households will be to trim monthly savings in this new post-pandemic economy.

The risk to growth going forward is that consumers will prove happier with the current level of expenditures relative to income than expected, and will shun the anticipated return to cities as they continue to nest in suburban locations while urban crime rates soar. Employers and employees will need to discover the new labor market balance, as employer demands to return to work encounter employee resistance. A portion of skilled labor has likely left large cities for good, and a portion of lower-skilled job opportunities will be forced to move with them. How this dynamic plays out will dictate the rate at which consumption and GDP growth decelerate into the second half of 2021.

Consumer Confidence: 117.5

Consumer confidence is expected to rise to back to the 1-year high of 117.5 seen in April, after a down-tick to 117.2 in May. We saw a 6-year low of 85.7 in April of 2020 and an 18-year high of 137.9 in October of 2018. We expect the present situation index to ease to 138.3 from a 1-year high of 144.3, versus a 7-year low of 68.4 in May of 2020 and a 19-year high of 176.0 in August of 2019. The expectations index should rise to 103.6 from 99.1 in May, versus a 2-year high of 111.9 in March, a 4-year low of 84.3 in November of 2020, and an 18-year high of 115.1 in October of 2018. We expect the 1-year inflation measure to dip to 6.4% from a 1-year high of 6.5% in May that was also seen in February, versus a 9-year high of 6.6% in June of 2020 and a 4.3% prior-cycle low in February of 2019. Confidence may prove slow to advance much beyond the April climb with vaccine distributions and stimulus. Michigan sentiment in June sat just below its April peak, and the IBD/TIPP index set the same cycle-high in both April and June. The Langer index has continued to rise to new cycle-highs in June, however.

Initial Jobless Claims: 400k

Initial jobless claims are expected to fall -11k to 400k, after a -7k decrease to 411k last week, but a 44k rise to 418k in the BLS survey week. Before the mid-June bounce, initial claims had been setting new cycle-lows with a steep rate of decline over a 6-week stretch, following a restrained pace of decline between November and March. Claims are expected to average 401k in June, after averages of 428k in May, 582k in April, and 724k in March. The 418k June BLS survey week reading lies well below recent survey week readings of 444k in May, 566k in April, 765k in March, and 847k in February. We assume a 550k June payroll rise, following a 540k average monthly gain over the last four months, and a 478k average gain thus far in 2021.

Continuing claims fell by -144k to 3,390k in the week of May 12, following an upwardly revised 3,534k figure. We expect continuing claims to fall -10k to 3,380k for the week ending June 12. The downtrend in the continuing claims data has moderated since March, just as the drop in initial claims has picked up steam. Continuing claims fell -221k between the May and June BLS survey weeks. We saw prior drops of -42k in May, -188k in April, -628k in March, -409k in February, -555k in January, and -705k in December.

Construction Spending: 0.6%

Construction spending is expected to grow 0.6% in May, after modest gains of 0.2% in April and 1.0% in March, leaving only a limited rebound after the February weather hit. We expect a 1.4% private residential construction rise after a 1.0% April increase, a flat figure for public construction after a -0.6% April dip, and a -0.3% private nonresidential decrease after a -0.5% April rate. We expect construction spending to grow at a 4.8% pace in Q2, following rates of 0.1% in Q1, 20.1% in Q4 and 10.9% in Q3. Construction hours-worked from the jobs report fell -0.5% in May, and construction jobs fell -20k. Construction spending is now fully constrained by capacity limits for labor and land in the residential market, just as nonresidential and public construction continues to contract, with geographic and skill differences capping labor migration between components. All the housing measures have rebounded to 14-year highs at various moments since Q3, alongside record-highs for the home price measures, which should lock in a construction uptrend at the capacity constraint throughout 2021.

ISM/ISM-NMI: 61.0/63.0

The ISM index is expected to edge down to 61.0 from 61.2 in May and an 18-year high of 64.7 in March, versus an 11-year low of 41.5 in April of 2020, and an all-time low of 30.3 in June of 1980. The ISM-NMI index is expected to fall to 63.0 from 64.0 in May, 62.7 in April, and 63.7 in March, leaving the four highest readings in history. We saw an 11-year low of 41.8 in April of 2020, and an all-time low of 37.8 in November of 2008. Producer sentiment has remained strong through Q2, as vaccines and two massive Q1 stimulus distributions fueled a steep retail sales climb to a March-April peak, while businesses will face the need to rebuild inventories probably throughout 2021, as factories attempt to catch up with demand.

Employment: 550k

We expect a 550k June nonfarm payroll increase, after gains of 559k in May and 279k in April. We assume a 35k factory jobs increase in June, after a 23k May drop. We assume a jobless rate drop to 5.6% from 5.8% in May and 6.1% in April. Hours-worked is assumed to rise 0.4% after a 0.5% May increase, while the workweek holds steady at 34.9 for the fourth month. Average hourly earnings are assumed to rise 0.2% after surprisingly large gains of 0.7% in April and 0.5% in May, as minimum wage workers have been slow to return to the workforce. The y/y wage gain should surge to 3.5% from 2.0%, with a big boost from base effects. In the last expansion, we saw a 3.5% peak for y/y wage gains, in both February and July of 2019, before the pandemic boost to an 8.0% peak in April of 2020. We expect a robust payroll trajectory in 2021 following the winter lull, thanks to stimulus deposits and vaccines.

Trade Deficit: -$69.5 bln

The trade deficit is expected to widen in May to -$69.5 bln from -$68.9 bln in April and an all-time high of -$75.0 bln in March. We expect exports to grow 0.6% to $206.2 bln, while imports grow 0.7% to $275.7 bln. The trade deficit should average -$69.8 bln in Q2, after gaps of -$70.9 bln in Q1 and -$66.7 bln in Q4. For 2021, we expect a -$70.4 bln average deficit, versus a -$56.4 bln average in 2020. Oil prices rose through May, hence providing a lift for petroleum sector trade, while trade-in vehicles posted May declines that extended pullbacks in April, thanks to semiconductor shortages. We expect a -$28 bln bilateral goods balance between the U.S. and China with elevated imports as U.S. businesses rebuild inventories largely with imported goods. We saw a -$43.1 bln all-time wide bilateral gap in October of 2018.

Factory Orders: 1.7%

Factory orders are expected to grow 1.7% in May, with a 0.7% ex-transportation increase. Shipments should grow 0.7%, while inventories rise 0.8%. The forecasts reflect the 2.3% durable goods orders climb with a 0.3% ex-transportation rise and a 7.6% transportation increase, alongside a 15.5% surge in defense orders. Transportation orders benefited from a May surge in Boeing orders to 73 planes, after a drop to 25 in April from a 2-year high of 196 in March. The vehicle assembly rate bounced to 9.9 mln in May from 8.8 mln in April. The factory goods I/S ratio should hold steady at 1.49 for a second month, versus a 19-month low of 1.47 in January. We saw an all-time high of 1.70 in April of 2020. The durable goods I/S ratio sustained the April rise to 1.79 from 1.78 in March, versus a 23-month low of 1.74 in January and an all-time high of 2.24 in April of 2020. We expect significant gains in factory orders, shipments, and inventories going forward, as companies scramble to rebuild inventories.

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