In the coming week, investors will be looking to retail sales data and retail earnings, along with comments from Federal Reserve officials, including Chair Jerome Powell, for clues on the future path of interest rates. Friday’s end of week bounce in equity markets came amid hopes markets are near the bottom after a brutal slide, but the tumble may still have more room to run. Crypto investors will also be monitoring the fallout after a massive price collapse. Meanwhile, U.K. inflation data is expected to show consumer prices surged above 9% in April. Here’s what you need to know to start your week.
U.S. Economic Data
Economic data this week will be closely scrutinised as investors try to gauge whether aggressive tightening by the Fed to curb soaring inflation will result in a hard or soft landing for the economy.
Tuesday’s retail sales figures for April are expected to show solid gains thanks to steady auto sales. Despite higher inflation, economists are forecasting a 0.7% increase after a 0.5% rise in March.
The U.S. is also to release regional data on manufacturing activity and reports on housing starts and existing home sales. Housing data is expected to cool because of rising mortgage rates.
Fed Chair Jerome Powell is to speak on Tuesday and is expected to reiterate that the U.S. central bank will hike rates by half a percentage point at its next two meetings.
Other Fed speakers during the week include New York Fed President John Williams, St. Louis Fed President James Bullard, Philadelphia Fed President Patrick Harker, and Chicago Fed President Charles Evans.
Retail Earnings
As well as economic data, investors will be looking to a spate of retail earnings reports during the week for indications of just how much the cost-of-living squeeze could be eroding the spending power of consumers.
The largest U.S. retailer Walmart (NYSE:WMT) and home improvement giant Home Depot (NYSE:HD) are due to report fiscal first-quarter earnings before the market opens on Tuesday. Target (NYSE:TGT) and Lowe’s (NYSE:LOW) are scheduled to report ahead of the opening on Wednesday, followed by Macy’s (NYSE:M) on Thursday.
Investors will be looking particularly closely at retailers’ guidance for the second half of this year amid elevated inflation, higher wage and fuel costs and ongoing supply chain disruptions.
Market Bottom?
Wall Street ended higher on Friday after another volatile week in markets as hopes that inflation may be close to peaking were offset by fears that aggressive policy tightening by the Fed could tip the economy into recession.
Despite Friday’s gains, the S&P 500 and the Nasdaq posted their sixth straight weekly loss, while the Dow recorded its seventh consecutive weekly decline.
Investors are looking for clear signs of a market bottom, amid fears the sharp selloff in equities may not be over.
“I don’t think we are out of the woods yet on a near-term basis,” Mark Hackett, chief of investment research at Nationwide told Reuters. “That being said, investor expectations have been reset dramatically.”
Rather than looking for signs of a bottom, Willie Delwiche, an investment strategist at market research firm All Star Charts told Reuters he is focused on more apparent indications that stocks can mount a sustained rally.
“Too many people right now are trying to pick a bottom, proving to be futile and expensive,” Delwiche said. “This is a risk-off environment … Moving to the sidelines, letting the volatility play out, makes a lot of sense for investors.”
Crypto Crash
Investors will be closely watching crypto assets in the week ahead after a volatile week last week, dominated by the collapse in the value of stablecoin TerraUSD, which broke its 1:1 peg to the U.S. dollar.
Stablecoins are tokens pegged to the value of traditional assets, often the U.S. dollar. They are the primary medium for moving money between cryptocurrencies or converting balances to fiat cash.
Last week, rating agency Fitch said that cryptocurrencies and digital finance could face “significant negative repercussions” if investors lose confidence in stablecoins, as many regulated financial entities have increased their exposure to the sector in recent months.
Crypto assets have been swept up in a broad-based selloff of risk assets amid concerns over elevated inflation and rising interest rates. Still, wider financial markets have so far seen little knock-on effect from the cryptocurrency crash. Fitch said that weak links to regulated financial markets would limit the potential of crypto market volatility to cause wider financial instability.
UK Inflation Surge
The UK is to release inflation data on Wednesday that is expected to show consumer prices leapt to 9.1% on a year-over-year basis in April, in what would be the most significant jump in annual inflation since 1980 and the fastest inflation rate since 1982.
The Bank of England said it expects inflation to rise above 10% in the fourth quarter when it hiked interest rates earlier this month.
UK jobs data a day earlier is expected to underline tightness in the labour market, adding to wage and price pressures.
In the Eurozone, European Central Bank President Christine Lagarde will speak on Tuesday, while the ECB will publish its latest meeting minutes on Thursday.
