US Data, Eurozone Inflation & China PMI: A Look at the Economy’s Near-Term Trajectory

Further information on the near-term trajectory of interest rates will be revealed by a plethora of US data and Eurozone inflation numbers. China’s PMI data will demonstrate how the reopening of the second largest economy in the world is progressing following the Lunar New Year holidays. There will be increased retail earnings and equity markets will be on high alert for Fed hawkishness. This information will help you get your week started.

Concerns over a “no landing” scenario in which strong growth keeps prices high and compels the Federal Reserve to keep rates higher for longer have increased in response to official statistics released on Friday showing a robust rebound in consumer spending and increasing inflation.

This week, there are a lot of data points that will give investors new perspectives on the health of the economy, including updates on home sales, durable goods orders, and consumer confidence. On Wednesday and Friday, respectively, the ISM manufacturing and service sector reports for February will be made public.

Data on consumer confidence released on Tuesday may be of special importance because they provide a window into how households perceive the economy’s outlook and inflation forecasts. Following the surprise decline in the index in January, economists anticipate an increase to 108.5.

The main event in a quiet week for Fed speakers is Governor Chris Waller’s Thursday speech on the forecast for the economy.

Stocks have declined this month after doing well in January as a slew of economic reports increased anticipation that the Fed will need to raise interest rates and keep them there for longer than usual.

After significant losses on Friday, Wall Street’s major indexes saw their largest weekly decline since 2023. The 3% drop was the largest weekly loss for the blue-chip Dow Jones Industrial Average since September. The Nasdaq Composite fell 3.3% and the S&P 500 fell 2.7%, respectively.

Loretta Mester, president of the Cleveland Federal Reserve, stated on Friday that the Fed should increase interest rates if necessary to bring inflation under complete control.

But, if data released in the next days shows that inflation and growth are still strong, equity and bond markets may decline much more.

Preliminary statistics on inflation in the Eurozone this week will be eagerly monitored because, while another 50 basis point rate hike at the European Central Bank’s forthcoming meeting in mid-March is nearly probable, what happens after that is still up for question.

On Tuesday and Wednesday, preliminary February data from Germany, France, Spain, and Portugal are due. On Thursday, the flash number for the entire euro area is due.

Although the annual rate of inflation in the bloc decreased from 9.2% in December to 8.6% in January, the focus will likely remain on core inflation, which excludes volatile food and energy prices. Price pressures are diminishing. It is anticipated that annual core inflation would register at 5.3%, mirroring January’s estimate.

Thursday’s figures are unlikely to appease hardline ECB officials who are pressing for rapid rate hikes to continue because inflation is still significantly higher than the ECB’s 2% target.

Investors will learn how China’s economic reopening is progressing from the PMI data released on Wednesday, with early signs pointing to a pickup in consumer spending over the Lunar New Year holiday period.

Positive data may rekindle some of the confidence for the resumed trade, which has been losing steam recently. After rising 7% in January, the A-share blue-chip CSI 300 Index is essentially flat for the month.

Prior to Beijing abandoning its tight zero-COVID policy, growth in the second-largest economy in the world dropped to one of the worst levels in half a decade in 2022 as a result of the COVID-19 lockdowns and limitations.

In the upcoming week, high-profile retailers’ earnings announcements will provide more information about the state of consumer spending and the impact of inflation on their bottom lines.

Target (NYSE:TGT), a large-format retailer, is expected to report before the market opens on Tuesday. On Wednesday, Lowe’s and discount retailer Dollar Tree (NASDAQ:DLTR) are scheduled to report before the market opens (NYSE:LOW). The results of Nordstrom (NYSE:JWN) and Costco (NASDAQ:COST) will be announced after the market close on Thursday, while Macy’s (NYSE:M) and Best Buy (NYSE:BBY) will report before the market opens.

Data released by Walmart (NYSE:WMT) and Home Depot (NYSE:HD) last week showed that consumers are limiting their purchases due to rising pricing.

Estimates predict a 2.7% increase in sales for Target’s most recent fiscal year, considerably less than the 6.7% increase Walmart announced.

Given that Lowe’s tends to draw more DIY buyers than inflation-resistant professional builders and contractors, Lowe’s may experience greater pain than larger rival Home Depot.