Manufacturing index jump helped market pull big gain

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What a difference a digit makes.

Last week ended with the market's eyes glued to the latest numbers on the state of U.S. manufacturing. Bears had fretted that the Institute for Supply Management's manufacturing index would slip below 50, which would indicate the factory sector is shrinking. Instead, the gauge surprised most onlookers by ticking up to 55.3, from 53.5 in May, helping to send the market to its biggest weekly gain in a year.

Reasonable investors might well ask whether billions of dollars in market capitalization should rest on the slender difference between a four and a five as the initial digit in a single survey. This week the market will be seeking confirmation that the global recovery is indeed moving ahead.

Much, of course, will depend upon Greece, which invented drama in the 5th century BCE, and is now exporting the stuff in quantity.

Over the space of just a few days last week, the Mediterranean nation erupted in riots and teetered on the brink of chaos, before agreeing to crucial austerity legislation, which opened the door to an aid package that will allow everyone to maintain the pretence for a little while longer that everything is just fine. For a sense of impending doom, the events beat anything Sophocles ever wrote.

This week's instalment of euro-drama will feature a meeting of the European Central Bank on Thursday. Everyone expects the bank to raise interest rates - the last thing the struggling economies of Greece, Ireland, Spain and Portugal need.

Also at centre stage will be the continuing efforts by the continent's finance ministers and private bankers to structure the Greek bailout in a way that won't result in credit-rating agencies classifying it as a default. Policy makers must avoid the d-word for fear they will trigger credit default swaps that investors took out as insurance against that thing-that-must-not-be-named. If nothing else, watching as Europe's brightest financial minds try to avoid calling a default a default will add a comic sub-plot to the drama unfolding in Athens.

In the United States, the week begins with the Fourth of July holiday and ends with job numbers that have the potential for fireworks of their own. First up will be the ADP private payrolls forecast on Thursday. Whispers say the figure looks ugly. On Friday, we'll find out more with the June jobs report. Expectations are that non-farm payrolls grew by a slim 80,000 jobs, far below the 150,000 or so that would be needed to lower the jobless rate and get the economy back on track to a vigorous recovery.

Closer to home, jobs will also be in focus on Friday when Statistics Canada announces the unemployment rate for June. Last week's announcement that GDP growth came to a standstill in April wasn't encouraging and one question is whether the 7.4 per cent jobless rate will rise as a result.

An even better question, though, is how much trust to put in those jobless numbers. "We have entered an awkward period during which the job releases are to be treated with greater than usual healthy skepticism," write Karen Cordes Woods and Derek Holt at Bank of Nova Scotia.

The problem is the school system. It is now hiring more people on short-term contracts rather than the 12-month deals that used to be standard. As a result, many short-term employees will report themselves as being out of work at the end of the school year even though they expect to be rehired in September. Just as a default isn't always a default in Europe, being classified as unemployed in Canada doesn't necessarily mean being unemployed.