This week promises to be an eventful one as 3 of the world’s largest central banks hold monetary policy meetings and 3 of the 4 largest US companies by market capitalization report earnings. The U.S. Federal Reserve is expected to slow the pace of interest rate hikes, while the European Central Bank and the Bank of England are expected to raise rates by 50 basis points. Friday’s U.S. jobs report will also be in focus, and stock exchanges in China will reopen after the New Year holiday. Here’s what you need to know at the start of the week.
1. FRS CUTS RATE HIKES?
Will the Fed continue to reduce the pace of rate hikes in the face of cooling inflation, or will it stick to its view? Market watchers expect a 25 basis point rate hike on Wednesday to a range of 4.5% to 4.75%, slowing the pace of increases for the second consecutive meeting.
Investors will be closely watching Fed Chairman Jerome Powell’s post-meeting press conference speech for any indication of how much the rate hike will be and when officials might consider a pause.
Meanwhile, on Friday, the U.S. jobs report is expected to show that the economy created 185,000 jobs in January, slowing from 223,000 the previous month, while the unemployment rate is forecast to rise to 3.6%. Average hourly earnings are expected to slow slightly from the previous month.
The economic calendar for the week also includes the December jobs report on Wednesday along with ISM PMIs.
2. ECB TO RAISE RATE BY 50 BASIS POINTS; LAGARDE REMAINS HAWKISH
A 50 basis point rate hike to 3% at the ECB at Thursday’s meeting looks like a fait accompli, but what happens next remains unclear. Market watchers will be watching for signs of how much and how quickly officials intend to move on.
ECB chief Christine Lagarde is likely to remain hawkish as core inflation remains stubbornly high despite growing dissent among policymakers, with more dovish voices arguing that inflation has moved away from record highs.
“Hawks” insist the situation will remain the same in March as inflation remains well above the ECB’s 2% target.
Prior to Thursday’s ECB meeting, the eurozone will release fourth-quarter GDP data on Tuesday, which is expected to show a small contraction. On Wednesday, the bloc will release January inflation data, which is expected to have slowed for the third consecutive month.
3. THE BANK OF ENGLAND WILL FOLLOW THE FRS AND THE EU
The Bank of England, the first major central bank to start raising rates since December 2021, is expected to make its tenth rate hike on Thursday.
Officials are widely expected to raise the rate by 50 basis points to 4%. The overall inflation rate fell to 10.5% in December, but it’s still 5 times the Bank’s official target and wage growth remains stubbornly high.
Market watchers will be watching for signs of whether officials believe the tightening cycle is nearing completion. The money market is currently awaiting the last 25 basis point rate hike in March, which would take the Bank Rate to its maximum level of 4.25%.
4. EARNINGS REPORTS
Apple (NASDAQ:AAPL), Amazon (NASDAQ:AMZN) and Alphabet (NASDAQ:GOOGL) – 3 of the 4 largest U.S. companies by market value – are due to report their results on Thursday as earnings reporting season is in full swing. Meta Platforms* (NASDAQ:META) is due to report on Wednesday.
Microsoft (NASDAQ:MSFT), the fourth of America’s largest companies, already reported last week. Its cloud business met Wall Street targets, but it provided a weak outlook that did little to cheer the broader technology sector.
Technology companies in general are under pressure to grow while cutting costs ahead of a possible recession.
143 companies in the S&P 500 have already reported earnings this earnings season. According to Refinitiv, 67.8% of them beat expectations, slightly better than the long-term average of 66%, but well below the 76% reported over the past 4 quarters.
Analysts now believe total S&P 500 earnings fell 2.9% year-over-year, down from the softer 1.6% decline seen on Jan. 1, according to Refinitiv.
5. CHINESE STOCK EXCHANGES REOPEN
China’s financial market will return to work after the week-long New Year holiday and look to build on what has been a 5-month peak for mainland China’s blue chips.
Holiday travel within China surged 74 percent from a year ago after authorities lifted COVID-19 restrictions, state media reported Saturday. Meanwhile, official data showed deaths from COVID-19 were down about 80% from a peak earlier this month, contradicting fears that holiday travel would trigger a new wave of infections.
Tuesday’s PMI data is likely to show some impact from the reopening of China’s businesses, with activity in the services sector expected to return to growth territory. The manufacturing sector is expected to remain in contraction, mainly due to the New Year holiday, with a strong rebound expected next month.