World Week Ahead: Brexit’s long shadow

Investors will eye US jobs data this week amid expectations that major central banks around the world are edging closer to adding fresh stimulus to help dampen the impact of the UK's decision to leave the European Union.

The ADP employment report and weekly jobless claims on Thursday, followed by the government's nonfarm payrolls report on Friday will provide the latest clues on the state of the US labour market.

"If there is another shock, people will identify that as a trend and there will be recession worries," said Aaron Jett, vice president of Equity Research at Bel Air Investment Advisors, told Reuters. "Even if the jobs number is good, we still think the Fed can use Brexit as an excuse to not raise rates."

The likelihood that the Federal Reserve will lift rates this year has fallen to 14 %, the latest fed funds data shows, according to Bloomberg, with money market derivatives not pointing to a 50 % or greater chance of an increase until 2018.

As for the June US employment data, the world's largest economy is expected to have added 180,000 new jobs, according to Reuters. This would be a solid recovery from May's unexpected weak 38,000 addition.

"As we consider the effects of Brexit, we've got to put that effect on the US together with what else is going on in the US economy," Federal Reserve vice-chairman Stanley Fischer told CNBC in an interview on Friday. "Most of the incoming data look good now."

An additional hurdle is that Brexit negotiations could take a long time, especially with the internal chaos plaguing both the ruling Conservative and opposition Labour parties. Regardless of who succeeds David Cameron as prime minister, no politician in the UK has made leaving the EU their highest priority.

"When it's something that is going to go on and unwind over the course of time, it's much harder," Fischer told CNBC, when asked about Brexit.

Fed officials slated to speak this week include New York Fed president William Dudley on Tuesday, and again on Wednesday. Fed governor Daniel Tarullo is also scheduled to speak on Wednesday.

Today US financial markets are closed for the Independence Day holiday.

On Wall Street last week, the Dow Jones Industrial Average gained 3.2 %, the Standard & Poor's 500 Index also added 3.2 %, while the Nasdaq Composite Index advanced 3.3 %.

Europe's Stoxx 600 Index posted a 3.2 % increase for the week.

Almost all of the world's major markets have recovered their post-Brexit losses.

Bank of England Governor Mark Carney last Thursday said that some monetary policy easing would likely be required over the summer.

As a result, the outlook for the British pound is considered glum. The currency was trading at $US1.3277 late Friday in London.

Of the 36 new predictions in a Bloomberg survey of analysts, 32 are for sterling to end the year at or below $US1.30, with only two forecasting a rally from current levels. The median estimate is at $US1.25.

Meanwhile, corporate bond investors are upbeat after the rebound in the markets from their initial tumble since the Brexit vote.

"For the amount of uncertainty, I would have thought the market would be weaker," Roger Webb, a London-based investment director at Aberdeen Asset Management, told Bloomberg. "I'm surprised there hasn't been a bit more panic. It feels as  if the market is pricing a more sanguine outcome, rather than the worst-case scenario."

(BusinessDesk)