Five things to watch in markets in the week ahead

Investing.com - Markets are likely to be focused during this holiday-shortened trading week in the U.S. on debate in the Senate over President Donald Trump’s signature tax-and-spending bill. Meanwhile, crucial job market data is set to released on Thursday, while electric car giant Tesla (NASDAQ:TSLA) is anticipated to unveil its second-quarter deliveries.

1. Senate’s tax-and-spending bill in focus

Republicans in the U.S. Senate have voted to begin debate over their version of the massive, Trump-backed "One Big Beautiful Bill Act," even as the legislation faces holdouts from inside the GOP and staunch Democratic opposition.

The measures, which a nonpartisan forecaster said could add around $3.3 trillion to the country’s ballooning $36.2 trillion debt pile over the next decade, are widely tipped to be passed by the upper chamber of the U.S. Congress, potentially as early as Monday.

Among a variety of initiatives, the bill would extend tax cuts first put in place by Trump in 2017, slash other taxes and increase spending on defense and border security.

Senators now likely face hours of debate before beginning a voting session on amendments to the legislation -- a step which could then be followed by a vote on full passage. The bill would next need to be approved by the House of Representatives.

GOP lawmakers in Congress are pushing to have the package on Trump’s desk ready for signing by a self-imposed July 4 deadline.

Writing in a note to clients, analysts at ING suggested that worries over the fiscal implications of the bill may be contributing to some weakness in the U.S. dollar on Monday.

2. Nonfarm payrolls

Outside of Washington, markets will likely be paying close attention to the latest nonfarm payrolls report for June, due out on Thursday.

Economists anticipate that a total of 120,000 jobs were added during the month, inching down from 139,000 in May.

Along with signs of relatively benign inflationary pressures, investors have been keeping tabs on the trajectory of the American labor market. Corralling price growth and working to ensure maximum employment remain two of the central mandates of a Federal Reserve which has taken a cautious approach to policy decisions in recent months.

Fed Chair Jerome Powell reiterated this message during Congressional testimony last week, underlining the wariness policymakers have over the still-uncertain impact of Trump’s aggressive tariff agenda on the wider economy. The Fed opted to keep rates steady at its latest meeting, arguing that it would be prudent not to take more action until the effect of the levies becomes clearer.

Other key economic data points out this week include a tracker of manufacturing and services sector activity from the Institute of Supply Management on Tuesday and Thursday, respectively.

3. Chinese manufacturing sector activity data

Elsewhere, China’s manufacturing sector contracted in June, albeit at a slightly less-than-expected pace as local manufacturers grappled with sluggish overseas demand amid elevated U.S. trade tariffs.

The manufacturing purchasing managers’ index read 49.7 in June, data from the National Bureau of Statistics showed on Monday. The number was slightly better than expectations of 49.6 and improved from the 49.5 posted in the prior month.

A reading below 50 indicates contraction, with China’s manufacturing sector now shrinking for a third straight month.

Yet the PMI picked up marginally from the prior month, reflecting some improving conditions for domestic manufacturers after the U.S. and China agreed to slash their respective trade tariffs in May.

Washington and Beijing have also made steps towards agreeing to uphold the May deal, as well as establishing a framework for a trade deal in June. Further improvements in trade relations between the two countries could benefit Chinese manufacturers, who may be able to sell more in U.S. markets as tariffs fall.

4. Tesla deliveries expected

Tesla is expected to unveil its second-quarter delivery numbers on Wednesday, as the electric carmaker grapples with flagging demand and controversy around the political stances of CEO Elon Musk.

Wall Street is modelling deliveries of roughly 390,000, representing a double-digit decline in sales compared to the year-ago period, when Tesla reported that it had delivered 443,956 vehicles.

Earlier this year, the company reported weak revenue weighed down by slipping electric car sales, particularly in the U.S. and Europe. First-quarter deliveries of 336,691 were well short of projections, reflecting some backlash to Musk’s proximity to Trump -- a relationship that has since wavered. Musk has backed away from much of his responsibilities in Washington and pledged to devote more time to running his many businesses.

Shares of Tesla have slumped by more than 14% so far this year.

5. Top central bankers to meet in Sintra

Central bankers from around the world are due to gather in the idyllic Portuguese town of Sintra this week, facing major questions over issues like trade tensions and recent violence in the Middle East -- and their collective impact on inflation and growth.

Although, with price gains seemingly muted, much of the conversation is anticipated to swirl around the longstanding role of the U.S. dollar as the world’s safe haven, especially given Trump’s sometimes harsh rhetoric around international institutions and protectionist viewpoints.

The issue could be raised when Federal Reserve Chair Jerome Powell, ECB President Christine Lagarde and the governors of the central banks of Japan, South Korea and Britian sit down for a panel discussion on Tuesday.

Powell will also likely be under close scrutiny, as he faces intense -- and often heated -- calls from Trump to quickly slash interest rates. Trump’s insistence has raised fresh worries over the independence of the Fed, a prospect that could threaten the dollar’s position as the currency of choice for saving and investing.

(Reuters contributed reporting.)