Top 5 Things to Watch in the Markets in the Week Ahead By

© Reuters

By Noreen Burke — U.S. inflation numbers and the start of corporate earnings season will be the highlights of a quiet week on the economic calendar. Inflation data for December will help influence the size of the Federal Reserve’s next rate hike, while corporate earnings will provide important insight into the health of the economy amid concerns about a potential slowdown. UK GDP, Japanese inflation and Eurozone data will also be in focus. Here’s what you need to know to start your week.

  1. US CPI

The US consumer price index for December will be released on Thursday, with economists expecting core inflation to rise from a year ago. Any sign that price pressures continue to ease could not only reinforce the view that the Fed is nearing the end of its most aggressive tightening cycle in decades, but also fuel speculation that interest rate cuts could happen later this year.

U.S. data showed on Friday that December payrolls expanded more than expected even as wage gains slowed and services activity contracted, easing concerns about the Fed’s monetary policy path.

Fed officials on Friday welcomed other signs that wage growth is cooling and the economy is slowing, with Atlanta President Raphael Bostic hinting at a quarter rate chance at the Fed’s next policy meeting from Jan. 31 to Feb. 1. He increased the percentages by 50. basis points in December.

  1. Earnings season begins

Companies will begin reporting fourth-quarter earnings next week, with investors looking for signs of a potential economic slowdown filtering down to the bottom lines.

Bank statements are due only on Friday Wells Fargo (NYSE:) Citigroup (NYSE: ), Bank of America (NYSE: ) and JPMorgan (NYSE: ), healthcare titan UnitedHealth Group (NYSE: ), asset manager BlackRock (NYSE: ) and Delta Air Lines (NYSE: ).

Consensus analyst estimates, according to Refinitiv IBES, call for a 1.6% decline in fourth-quarter profit compared to the year-ago period. Some think the 2023 forecasts are still too rosy given the risks of recession.

If current earnings estimates don’t fully account for any economic slowdown, stocks may be more expensive than they appear, and any downturn could further reduce what investors are willing to pay for the stock.

  1. UK GDP

The UK will announce on Friday amid double-digit levels of inflation, transport and public sector strikes and a historic drop in the cost of living amid a softening housing market. .

After nine consecutive Bank of England rate hikes and more to come, British mortgage approvals hit their lowest level since the pandemic-related recession of June 2020.

As price pressures and higher borrowing costs bite, Prime Minister Rishi Sunak has pledged to halve inflation, boost the economy, reduce the national debt and reduce healthcare waiting lists.

But analysts at Deutsche Bank see continued high inflation this year, no interest rate cuts until 2024 and tighter fiscal policies, while Barclays analysts expect the UK economy to continue contracting until the end of the third quarter of 2023.

  1. Eurozone data

Germany will publish estimates on Friday that will show the impact of the energy crisis caused by Russia’s war in Ukraine on the eurozone’s biggest economy.

It is to publish data for the wider Eurozone on the same day. High energy import costs pushed the bloc’s trade balance from surplus to deficit, but the deficit narrowed in October as gas prices fell and market watchers looked to see if the trend would continue in November.

Industrial production is forecast to bounce back slightly after a decline in October.

  1. Tokyo inflation

Market watchers will be closely watching Tokyo’s inflation numbers on Tuesday after last month’s report first tipped the market toward a potential Bank of Japan policy change.

— which leads the national numbers, often for several weeks — rose to a four-decade high in November.

Less than a month later, the BOJ reversed controls on bond yields, allowing long-term interest rates to rise further. The move was intended to ease some of the costs of prolonged monetary stimulus.

While BOJ officials argued the move was a one-off, it rose to a seven-month high as expectations grew for an even draconian change. The BOJ is scheduled to hold its next policy meeting on January 18.

–Reuters contributed to this report

Source link