Top 5 things to watch in the markets in the coming week


By Noreen Burke — US inflation data and the start of the corporate earnings season will be the main highlights of an otherwise 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 data from the Eurozone will also be featured. Here’s what you need to know to start your week.

  1. US CPI

The US consumer price index for December is due to be released Thursday, with economists expecting core inflation to be higher than a year earlier. Any sign of further easing of price pressures could not only reinforce the view that the Fed is nearing the end of its most aggressive tightening cycle in decades, but could also fuel speculation that rate cuts could come later this year.

Data from the US on Friday showed that payrolls grew more than expected in December, even as wage increases slowed and services activity contracted, allaying concerns about the Fed’s monetary policy.

Fed officials on Friday acknowledged cooling wage growth and other signs of a gradually slowing economy, with Atlanta President Raphael Bostic hinting at the chance of a quarter of a percentage point

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at the Fed’s next policy meeting on January 31-February 1. It raised interest rates by 50 basis points in December.

  1. Earnings season is underway

Companies will begin reporting fourth-quarter earnings in the coming week, with investors looking for signs of a possible economic slowdown trickling down into earnings numbers.

Reports are coming from banks on Friday alone Wells Fargo (NYSE:), Citi group (NYSE:), Bank of America (NYSE:) and JPMorgan (NYSE:), healthcare giant UnitedHealth Group (NYSE:), asset manager BlackRock (NYSE:) and Delta Air Lines (NYSE:).

Consensus analysts estimate, according to Refinitiv IBES, a 1.6% decline in fourth-quarter earnings from the same period a year ago. Some still think the projections for 2023 are too rosy given the risks of a recession.

Equities may be more expensive than they appear if current earnings expectations don’t fully account for an economic slowdown, while a downturn could further dampen what investors are willing to pay for equities.

  1. UK GDP

The UK will release November figures on Friday against a backdrop of historic cost-of-living pressures amid double-digit inflation, transport and public sector strikes and a weakening housing market as the country faces what is likely to be a protracted recession.

After nine consecutive rate hikes by the Bank of England, with more to come, UK mortgage approvals in November hit their lowest level since the pandemic-induced slump of June 2020, recent data showed.

As price pressures and higher borrowing costs mount, Prime Minister Rishi Sunak has pledged to cut inflation in half, grow the economy, cut public debt and shorten healthcare waiting lists.

But analysts German Bank see inflation continue this year, no interest rate cuts until 2024 and fiscal policy becoming austere, while analysts from Barclays expects the UK economy to continue to contract until the end of the third quarter of 2023.

  1. Eurozone data

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

The wider Eurozone will release data on and same day. The high cost of energy imports has tipped the bloc’s trade balance from surplus to deficit, but the deficit narrowed in October as gas prices fell and market observers will watch to see if this trend continues into November.

Industrial production is expected to recover slightly after falling in October.

  1. Inflation in Tokyo

Market watchers will be keeping a close eye on Tokyo’s inflation data on Tuesday, after last month’s report first alerted the market to a potential policy change from the Bank of Japan.

— which is often several weeks ahead of national figures — surged to a four-decade high in November.

Less than a month later, the BOJ adjusted its monitoring of bond yields, allowing long-term interest rates to rise more, misleading markets. The move was designed to alleviate some of the costs of long-term monetary stimulus.

It has risen to a seven-month high on rising expectations for a further aggressive shift, even though BOJ officials claim the move was a one-off. The BOJ will hold its next policy meeting on January 18.

–Reuters contributed to this report

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