What To Expect In The Week Ahead?

Three of the top four U.S. firms by market value will report profits this week, and three of the world’s largest central banks will meet to discuss policy. While the Federal Reserve is anticipated to reduce the rate of rate increases, the Bank of England and the European Central Bank are anticipated to both raise rates by 50 basis points. Markets in China are reopening following the Lunar New Year holidays, and the Friday jobs data from the United States will also be in the limelight. 

Will the Fed stick to its guns or cut down the rate hikes in the face of declining inflation? Market observers anticipate a rate hike of 25 basis points to a range of 4.5% to 4.75% on Wednesday, reducing the rate of increase for a second consecutive meeting.

Investors will be paying particular attention to Fed Chair Jerome Powell’s post-policy meeting news conference for any clues regarding how much higher rates will increase and when authorities may consider a pause.

The employment report being out on Friday is anticipated to reveal that the economy added 185,000 jobs in January, down from 223,000 the month prior, and that the unemployment rate increased slightly to 3.6%. It is anticipated that hourly wages will gradually decline from the preceding month.

Along with ISM PMIs on Wednesday, the economic calendar for the week also includes a report on job openings for December.

What will happen once the ECB raises rates by 50 basis points to 3% at its meeting on Thursday appears to be a done deal. Market observers will be looking for clues as to how far and how quickly government plan to go.

Despite rising disagreement among policymakers, with more dovish voices saying that inflation has fallen from record highs, ECB President Christine Lagarde will probably continue to be hawkish as core inflation remains persistently high.

With inflation remaining much above the ECB’s 2% objective in March, policy hawks are advocating for more of the same.

The Eurozone will report its fourth quarter GDP on Tuesday, ahead of the ECB meeting on Thursday, and it is predicted to show a little contraction. On Wednesday, the EU is scheduled to report data on inflation for January, which is anticipated to have slowed for a third consecutive month.

On Thursday, the BOE, the first of the major central banks to start raising rates, is anticipated to announce its tenth rate increase since December 2021.

Rate increases of 50 basis points to 4% are generally anticipated from the authorities. The Bank’s official objective for headline inflation was 10.5% in December, but it is still nearly five times that amount, and wage growth is also consistently strong.

Market observers will be on the lookout for clues as to whether policymakers believe their tightening cycle is about to come to a close. The Bank Rate is presently anticipated to experience one more 25 basis point increase in March, bringing it to a high of 4.25%.

As the earnings season ramps up, three of the four largest U.S. businesses by market value, Apple (NASDAQ:AAPL), Amazon (NASDAQ:AMZN), and Alphabet (NASDAQ:GOOGL), are all scheduled to announce results on Thursday. On Wednesday, Meta Platforms (NASDAQ:META) is expected to report.

The fourth American megacap, Microsoft (NASDAQ:MSFT), had released its earnings last week. Although its cloud division beat Wall Street expectations, it provided a mediocre forecast that did little to boost the broader tech industry.

In general, tech companies are under pressure to expand while reducing expenses in anticipation of a potential recession.

This earnings season, 143 S&P 500 businesses have already reported. Refinitiv reports that of those, 67.8% have exceeded Street forecasts, which is significantly less than the 76% beat rate over the previous four quarters but still marginally better than the long-term average of 66%.

According to Refinitiv, analysts now predict that overall S&P 500 earnings would decline by 2.9% annually, up from the 1.6% annual decline that was observed on Jan. 1.

After a week-long break for the Lunar New Year, the Chinese financial markets will reopen and aim to continue where they left off, with mainland blue chips at a five-month high.

After the government lifted COVID-19 limitations, holiday travel within China increased 74% from the previous year, according to official media on Saturday. In contrast to concerns that holiday travel might bring on a new wave of infections, official data showed that COVID deaths have decreased by approximately 80% from their peak earlier this month.

With service sector activity anticipated to bounce into expansion zone, PMI data on Tuesday will probably demonstrate some effects of China’s reopening. Given the date of the New Year’s vacation, it is anticipated that the manufacturing sector will continue to decrease, although next month should see a significant uptick.