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


By Noreen Burke — The deadlock over the US debt ceiling looks likely to deepen in financial markets as the earnings season progresses. Markets will receive an update on US growth in the fourth quarter, which is expected to remain solid despite more recent signs of a slowdown. The eurozone will release PMI data, while inflation data from Japan will also be closely monitored. Here’s what you need to know to start your week.

  1. Debt ceiling impasse

The US government hit its $31.4 trillion credit limit on Thursday amid a row between hardline Republicans and President Joe Biden’s Democrats over raising the country’s debt ceiling.

House Republicans want government spending cuts before passing a higher ceiling; a similar demand in 2011 led S&P to downgrade the US credit rating for the first time and caused chaos in the financial markets.

The high-stakes deadlock is widely expected to last for months and could stretch to the last minute as both sides test each other before June — the date by which the Treasury will likely have exhausted all emergency maneuvers to avoid default.

“From both an economic and financial perspective, not raising the debt ceiling would be an unmitigated disaster,” said David Kelly, Chief Global Strategist for JPMorgan Chase & Co funds.

  1. Technical income

Earnings results in the coming week will challenge the recent uptick in technology stocks amid questions of whether megacap companies can increase sales and profits while cutting costs as the US economy shows signs of a slowdown and possible recession .

Microsoft (NASDAQ:), the second largest US company by market value, reported Tuesday, followed by Elon Musk’s Tesla (NASDAQ:) on Wednesday and Intel (NASDAQ:) on Thursday.

The earnings season has got off to a lukewarm start. According to data from Refinitiv, companies are expected to post a 2.9% overall decline in fourth-quarter earnings from the same period a year ago. compared to a decline of 1.6% at the beginning of the year.

Alphabet (NASDAQ:) said Friday it is cutting about 12,000 jobs, or 6% of its workforce, the latest tech giant to announce layoffs. Microsoft on Wednesday said it would cut 10,000 jobs, while Amazon (NASDAQ:) began notifying employees of its own job cuts of 18,000 people.

  1. US economic numbers

The US will release its first estimate of gross domestic product for the fourth quarter on Thursday, with analysts expecting the economy to have grown year on year, after 3.2% in the third quarter.

While this seems strong, more recent economic data indicates that the economy is losing momentum by the end of 2022 – retail sales fell 1% or more in the past two months, industrial production fell over the past three months and housing construction posted six consecutive monthly declines.

GDP is expected to weaken in the coming quarters as a result of aggressive action by the Federal Reserve

rate increases

continue to meet demand.

The economic calendar also includes data on , and on Thursday and on Friday.

  1. Euro zone

Several European Central Bank officials will appear before policymakers enter their traditional pre-policy meeting period on Thursday. The next ECB policy meeting is on 2 February.

The ECB president, who resisted market bets last week that he would slow the pace of rate hikes given the recent declines in inflation, is scheduled to make two appearances.

Meanwhile, data from the Eurozone may provide further indications about the health of the economy.

The bloc will release flash PMI data on Tuesday that is expected to tick higher, while the close German is expected to improve for a second month on Wednesday.

  1. Inflation watch

Japan will release consumer price inflation data for the region on Friday, which will be closely watched after the Bank of Japan defied market expectations for a more aggressive policy shift last week as it maintained yield curve control.

Japan’s inflation is at its highest level in four decades and double the BOJ’s 2% target, but the BOJ is resisting market bets that the end of its protracted ultra-loose monetary policy is near.

Meanwhile, both will release inflation data on Wednesday as the Reserve Bank of Australia considers whether it is time to pause rate hikes and the Reserve Bank of New Zealand considers how much more to tighten monetary policy.

–Reuters contributed to this report

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