US indices ended the first week of August (2-6 August) on an upbeat note with new highs for the S&P 500 which closed 0.9% higher for the week (18% year-to-date) and the Dow which rose 0.7%, while the tech-focused Nasdaq Composite advanced by 1.1%.

Bank shares led gains after Friday’s bumper jobs report for July showed the US economy adding 943,000 jobs, which was above estimates of 845,000 with the unemployment rate dipping to 5.4%, also below estimates of 5.7%. In contrast, techs such as Zoom retreated as investors took profits to move into businesses that would benefit more from faster economic growth.

JPMorgan and Bank of America rose by nearly 3% on Friday as bank stocks had their best day in nearly a month as the jobs report raises the prospects of profitability, while industrials, retailers, transport and energy shares also advanced as the same report also eased concerns over an economic stall. That was also reflected in the 10-year Treasury yield rising to 1.29% after hitting a low of 1.13% earlier during the week amid concerns over Covid disruptions to the pace of economic recovery.

Overall, the backdrop for risk assets remains constructive amid better-than-expected earnings from 87% of S&P 500 companies, high savings and supportive policies which may get a further fiscal boost from the Biden administration’s bipartisan $1 trillion infrastructure bill. Analysts at Goldman Sachs see room for the S&P 500 to advance by a further 7% by the yearend.

Investors will continue to seek signs from key data this week – especially the consumer price index (CPI) and producer price index (PPI) numbers as well as consumer sentiment and jobless claims as to whether the US economy (including wages) will heat up further which will determine the Fed’s next course of action.

That will have to be weighed against the backdrop of the Delta variant threatening Covid-19 defences again as US daily new cases surged to a six-month high of more than 100,000, threatening economic re-openings and the pace of business hiring.

The Biden administration is reported to be considering withholding of federal funds to get more Americans vaccinated, while the US Food and Drug Administration (FDA) may adopt a vaccine boosters plan by early September in another step-up initiative to curb the spread of the virus.

Several Fed officials will meanwhile be airing their views during the week. These include two ‘hawkish’ members who have leaned towards earlier tapering of bond purchases, though the general market expectations are that any clear indications of ‘taper talk’ by the Fed to move the needle will only be in September or later with actual tapering likely to start at the end of the year or early 2022, followed by the first rate hikes in 2023.

Disney, eBay, Wendy’s, Airbnb, BioNTech, AMC Entertainment and Planet Fitness will be among the companies reporting their earnings while June industrial production numbers from Eurozone (Bloomberg estimates at 11% on year and 0.4% on month) and the UK (Bloomberg Est +9.0% to 9.3% y/y and +0.8% m/m) will also be unveiled this week.

With most of the US earnings in the rearview mirror, markets will likely trade sideways till the Fed’s annual symposium at Jackson Hole (Aug 26-28) as investors try to seek a balance between optimism from positive macro data which also fuel fears over missing out (FOMO) in reflation trades and worries that inflation will pare corporate profits – while facing uncertainties over the path of the virus.

The same concerns have taken hold in other economies with authorities racing to vaccinate more of their populations. That includes Asia where the focus will also be on the regulatory trajectory in China which has routed shares of Chinese tech titans such as Alibaba, Tencent, Meituan and Pinduoduo. Chinese tech tycoons are estimated to have lost $87 billion after Beijing’s crackdown, according to the Financial Times.