With the Federal Reserve almost certainly poised to deliver a half-percentage-point rate hike at its next meeting on Wednesday, investors will await further information on its next steps to fight back. against the outbreak. The labour market is another key part of the Fed’s mandate and Friday’s US jobs report is expected to show job growth remained robust in April. Earnings will continue to rise as investors consider what was the worst month for stocks in more than two years. Meanwhile, the Bank of England is expected to deliver its fourth consecutive rate hike, a day after the Fed on Thursday. Here’s what you need to know to start your week.
Fed Rate Hike
With the Fed half a percentage point already priced in, investors will focus on signals from Fed Chairman Jerome Powell during his post-policy meeting press conference on the future path of interest rates, the plans to reduce its balance sheet by nearly $9 trillion. and the Fed’s view of when inflation might peak.
Many investors and analysts believe the Fed will continue to surprise on the hawkish side as it tries to contain the worst inflation in four decades, stoking fears that aggressive monetary tightening could trigger a recession.
The view of Fed policymakers on the expected persistence of the current pace of inflation will be key to plans for monetary policy tightening.
“If the Fed continues to expect high levels of inflation and doesn’t see it moderating going forward, that will be a concern for investors,” chief strategist Michael Arone told Reuters. investments at State Street Global Advisors.
That will mean the Fed will continue to raise rates and tighten monetary policy, as the market expects, but perhaps even more aggressively.”
Nonfarm Payroll Report
Friday’s nonfarm payrolls report is expected to show the US economy added jobs in April, while the jobless rate is expected to drop too. should post another solid increase.
The jobs report follows data from last Thursday showing the US economy unexpectedly contracted in the first quarter, but the decline was largely due to a wider trade deficit as imports rose and a slowdown in the pace of inventory accumulation. Domestic demand remained robust, dispelling fears of recession.
But the outlook for the economy continues to be clouded by worries about the economic impact of war in Ukraine, rising bond yields, new coronavirus shutdowns in China that could hamper improvements in global supply chains and the more aggressive tightening of monetary policy by the Fed.
Revenue Reports
Earnings season is set to continue, with investors watching reports from (NYSE:), (NASDAQ:), (NASDAQ:) and (NYSE:) over the week, among others.
April marked the biggest monthly decline since the start of the coronavirus pandemic in early 2020, while heavy tech saw its biggest monthly drop since the 2008 financial crisis.
Disappointing results and worries about the Fed’s aggressive monetary policy tightening hurt mega-cap technology and growth stocks.
Selling accelerated on Friday as the S&P 500 tumbled 3.6% — its biggest one-day drop since June 2020 — following disappointing earnings and guidance from the (NASDAQ:) that dragged down shares of the e-commerce giant by 14%.
Economic Data
Along with the April Fed meeting, earnings and jobs report, the economic calendar features several key economic reports over the coming week, including the PMI and Monday and Wednesday, respectively. Strong readings here would likely underline the view that the economy will expand in the second quarter, keeping the Fed’s tightening plans on track.
The report is due on Tuesday, followed a day later by the numbers. The Labor Department is due to release the weekly report on Thursday ahead of Friday’s nonfarm payroll data.
Bank of England Meeting
The Fed is widely expected to make its fourth consecutive rate hike when it meets a day after the Fed on Thursday, the first time it would have done so since 1997.
BoE Governor Andrew Bailey said the bank was walking a “very tight line” between controlling inflation, which at 7% is more than three times its target and preventing a recession.
A quarter-point rise to 1% would fulfil a precondition for the BoE to start actively selling the bonds it holds.
Active bond sales would tighten monetary conditions but could hurt a faltering economy and no major central bank has yet started the process.
– Reuters contributed to this report
