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Top 5 things to watch in markets in the week ahead
Top 5 things to watch in markets in the week ahead
It’s set to be an action-packed week in markets with the Federal Reserve’s first meeting of the year, a flurry of big tech earnings and the latest U.S. jobs report. The Bank of England also holds its first policy meeting of 2024 while data out of China is expected to remain gloomy. Here’s what you need to know to start your week.
1. Fed ahead
The Fed is widely expected to keep interest rates unchanged on Wednesday with investors eagerly awaiting any indication that officials believe they have progressed enough in their battle against inflation to begin cutting rates sooner rather than later. Investors have pushed expectations for the Fed’s first rate cut to May from March following recent strong economic data and statements from Fed officials that suggested that cuts may not be as aggressive as expected. Data on Friday indicated that inflation is moderating but consumer spending remains robust, leading to concerns that price pressures could begin to mount again. Investors will be closely watching Fed Chair Jerome Powell’s post policy meeting press conference for any insights into how officials have been interpreting recent economic data.
2. Jobs report
Hard on the heels of the Fed decision the U.S. is to release the January jobs report on Friday, with the economy expected to have added 177,000 new jobs, slowing from 216,000 the prior month. The recent stock market rally which has powered the S&P 500 to record highs has been driven by expectations of a U.S. economic “soft-landing” in which growth remains stable while inflation cools.
A weaker than expected reading could indicate that the 525 basis points of rate increases delivered by the Fed since 2022 are finally starting to bite, while stronger-than-expected hiring could bolster the case for the central bank to keep rates higher for longer. The economic calendar also includes data on JOLTS job openings and consumer confidence on Tuesday, followed a day later by a report on private sector payrolls and weekly data on initial jobless claims on Thursday.
3. Megacap earnings
Earnings will be a major focal point in the week ahead with five of the massive “Magnificent Seven” growth and technology stocks that have powered markets higher for much of the last year reporting. Alphabet (NASDAQ:GOOGL) and Microsoft (NASDAQ:MSFT) are due to report results on Tuesday, followed by Apple (NASDAQ:AAPL) and Amazon (NASDAQ:AMZN) on Thursday with Meta Platforms (NASDAQ:META) closing out the week on Friday. With the S&P 500 officially in a bull market, the Magnificent Seven's results will be crucial in determining whether the index can maintain its momentum.
Collectively, the market capitalization of Alphabet, Microsoft, Apple, Amazon and Meta account for nearly 25% of the S&P 500, giving them an outsize influence on the performance of the broader index. There’s not this monolithic performance among those stocks anymore, If there is a downside to earnings … that could take the bloom off the rose for the market as a whole.
4. Bank of England
The BoE is expected to keep interest rates on hold on Thursday and while it may drop its long-held warning that it will hike rates again if inflation rebounds it is expected to indicate that rates need to remain restrictive for an extended period. The latest U.K. jobs report showed that wage growth rose at the slowest pace in almost a year in the three months to November, but inflation unexpectedly rose to 4% in December. Britain's economy started 2024 on a stronger footing but data last week indicated that supply disruptions in the Red Sea are reigniting inflation in the manufacturing sector. The BoE raised interest rates 14 times between December 2021 and August 2023, taking rates to a peak of 5.25% after inflation surged to a 41-year high of 11.1% in late 2022.
5.China PMIs
China is to release official purchasing managers' index (PMI) data on Wednesday that is likely to show that the world’s second largest economy remains on a shaky footing. China's economy expanded by 5.2% in 2023, but its post-pandemic recovery has been shaky, with a protracted housing downturn, mounting deflationary risks and slowing global growth casting clouds over the outlook for this year.
China's central bank announced last Wednesday that it was making a 50-basis point cut to bank reserves, the biggest in two years, sending a strong signal of support for a fragile economy and the country's plunging stock markets. Still, analysts say more stimulus is needed this year to get economic activity on more solid footing.
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