Understand Fed Rate Hike Trajectory: Inflation, Eurozone Data, & More

In order to understand the Federal Reserve’s rate hike trajectory, investors will be closely examining Tuesday’s U.S. inflation statistics. The end of the earnings season coincides with a flood of economic data being released in the U.K. The Eurozone will present revised quarterly economic estimates, while the Japanese government will propose a new candidate for central bank governor. This information will help you get your week started.

Following recent good jobs data that caused markets to re-evaluate estimates for how high the Fed may need to hike rates this year, investors will be closely watching Tuesday’s CPI numbers for signs that inflation is continuing to decline.

Inflation increased in December rather than declining as had been anticipated, and numbers for the two months before that were also updated.

A significant increase in inflation could make markets reconsider whether the Fed would truly lower interest rates by year’s end, potentially undermining the rally that has lifted stocks and bonds since the end of last year.

The weekly report on initial unemployment claims and statistics on January’s retail sales and PPI are also included in the economic calendar.

John Williams, the president of the New York Fed, James Bullard, Patrick Harker, the president of the Philadelphia Fed, and Loretta Mester, the head of the Cleveland Fed, are among the Fed officials scheduled to appear this week.

Last week, in a week marked by hawkish remarks from Fed officials and earnings releases, the Nasdaq experienced its first weekly down of the year, falling 2.41%, while the S&P 500 and the Dow Jones both experienced weekly declines of 1.11% and 0.17%, respectively.

According to Refinitiv statistics, 69% of the companies listed on the S&P 500 have reported earnings that exceeded profit forecasts for the quarter.

Coca-Cola (NYSE:KO), which will announce profits on Tuesday before the market opens, is one company with noteworthy earnings in the coming week. Deere (NYSE:DE) will report before the market opens on Friday, while Kraft Heinz (NASDAQ:KHC), Krispy Kreme (NASDAQ:DNUT), Biogen (NASDAQ:BIIB), Barrick Gold (NYSE:GOLD), and Kraft Heinz (NASDAQ:KHC) will all report before the market opens on Wednesday.

The Bank of England will use this week’s data on jobs and inflation in the UK to decide whether or not to raise rates again in March.

The BOE has hinted that the 50 basis point rate increase in February might have been the final one in its current tightening cycle, but the inflation data for January, due out on Wednesday, is anticipated to reveal price increases that are still double digits.

While this is happening, the BOE will continue to be under pressure from the jobs report on Tuesday and the January retail sales data that will be released on Friday, which is predicted to indicate another decrease.

The BOE predicted last week that Britain will experience a short-lived recession that would run for five quarters, beginning in the first quarter of this year.

The official nomination of an unexpected candidate to succeed Haruhiko Kuroda, whose ten years as governor of the Bank of Japan will shortly come to an end, is scheduled for Tuesday by the Japanese government.

The news that Kazuo Ueda, a 71-year-old academic and former member of the BOJ policy board, would be nominated caused the yen to rise higher at first, but it later gave back some of its gains when he indicated support for the central bank’s current stance.

One of the key concerns for markets around the world this year is whether, when, and how the BOJ will change its monetary position. Observers of the BOJ believe that if inflation rises, its ultra-loose monetary policy is likely to change.

Despite the fact that Ueda is regarded as an authority on monetary policy, the majority of analysts said his selection was completely unexpected and might portend a drive to phase down ultra-low interest rates earlier than first anticipated.

On Wednesday, the European Commission will present its quarterly projections for the euro area’s economy. Prior to that, the Eurozone will present updated GDP figures on Tuesday.

On Wednesday in Strasbourg, President of the European Central Bank Christine Lagarde is scheduled to give a testimony to the European Parliament regarding the bank’s annual report.

Other ECB representatives scheduled to appear this week include Vice President Luis de Guindos, Chief Economist Philip Lane, Executive Board members Fabio Panetta and Isabel Schnabel, and Vice President Luis de Guindos.