TORONTO - Stock markets will likely be off to a cautious start this week after U.S. employment data missed expectations by a mile in June and market watcher look ahead to second-quarter corporate earnings reports.
Investors are hoping that strong earnings and outlooks will compensate for June jobs data that deepened worries that the American economy is stuck in a soft patch.
The U.S. Labour Department shocked markets Friday with the news that the economy created only 18,000 jobs during last month, far below expectations of at least 90,000 jobs.
The report sent markets further into a funk on worries that the global economic growth is faltering.
Corporate earnings reports will start providing some distraction as aluminum giant Alcoa reports its results after the markets close on Monday.
There have been early signs that investors will be pleased with second quarter earnings.
"The good news is there hasn't been any profit warnings. It's been pretty quiet, which suggests you would think some confidence from management that they will hit their numbers," said Colin Cieszynski, market analyst at CMC Markets Canada.
However, that's not to say that earnings reports will be immune from the various pressures that battered stock indexes during the second quarter and left the TSX slightly below where it started the year.
"The reality is I think that you had a soft patch in the global economy in the second quarter and that will be reflected to some degree in some earnings," said John Johnston, chief strategist, The Harbour Group at RBC Dominion Securities.
But Johnston, like many other analysts, points out that the economy was subject to a number of what are hoped to be temporary factors. These included the severe supply chain pressures that arose from the Japanese earthquake and tsunami of March 11 and a large spike in energy prices resulting partly from a wave of unrest across the Middle East.
"We're seeing some glimmers now that things are reversing, a number of the factors that hit were transitory," said Johnston.
Because of the high hopes that the current spate of economic problems is temporary and a pickup is expected in the second half, investors will be looking to more than earnings and revenue.
"You know, people are worried about the guidance," he said.
"And I would suspect that we may be pleasantly surprised by some of the comments that come out."
The other major American corporation handing earnings this week if JPMorgan Chase on Thursday.
Canadian media company Corus (TSX:CJR.B) and energy company Nexen (TSX:NXY) also hand in earnings on Thursday while American bank Citigroup and toymaker Mattel report the following day.
The TSX ended last week up 71 points or 0.5 per cent, with a chunk of that advance due to a stronger than expected manufacturing report from the Institute for Supply Management on July 1.
But the gain still left the TSX stuck about 70 points where it started the year.
On the economic front, traders will be looking Thursday for a turnaround in U.S. retail sales during June. Economists expect sales gained 0.2 per cent during the month following a 0.2 per cent decline in May, supported by strong chain store results.
U.S. inflation data for June comes in Friday. Economists at BMO capital markets think that "a six per cent drop in gasoline prices and softer crop prices should reduce the consumer price index for the first time in a year."
It is expected the U.S. consumer price index slipped 0.2 per cent last month.
In Canada, traders will likely get another indication of the resiliency of the housing sector. BMO also expects Canada Mortgage and Housing Corp. is expected to report that housing starts came in at 185,000 during June, up from 183,600 in May.
And Statistics Canada releases its Merchandise Trade Balance on Tuesday. Economists think a pullback in commodity prices in early May and reduced auto production likely cut into exports. The consensus calls for the trade deficit to come in at $700 million, down from $900 billion in April.
