A set of data from the US and Eurozone inflation figures will give more insight into the near-term course of interest rates. PMI data from China will show how the world’s number two economy is progressing to reopen after the Lunar New Year holidays. Equity markets will be on alert for the Fed’s hawk. And new earnings reports are expected from the retail industry.
Here’s what you need to know to start the new week:
1. US data
Official data released on Friday, pointing to a strong recovery in consumer spending and accelerating inflation, raised concerns about a “no landing” scenario in which strong growth keeps inflation high and the Fed keeps interest rates higher for longer.
Investors will gain new insights into the strength of the economy with the release of a range of data this week, including reports on durable goods orders, consumer confidence and home sales. ISM manufacturing and services sector reports for February will be released on Wednesday and Friday, respectively.
Tuesday’s consumer confidence data may be of particular interest as it offers a glimpse into households’ views on economic and inflation expectations. Economists expect the index to rise to 108.5 after unexpectedly falling in January.
It’s going to be a quiet week for Fed officials’ speeches, with President Chris Waller’s speech on the economic outlook coming to the fore on Thursday.
2. Hard landing?
Stocks slumped this month after a slew of economic data boosted expectations that the Fed will need to raise interest rates and keep them higher for longer than previously seen, after a strong performance in January.
Wall Street’s main indexes posted their biggest weekly decline in 2023 after sharp losses on Friday. The 3% drop for the premium Dow Jones Industrial Average was the biggest weekly drop since September. The S&P 500 and Nasdaq Composite fell 2.7% and 3.3%, respectively.
Cleveland Fed President Loretta Mester said on Friday that the Fed would need to raise rates more than necessary to fully contain inflation.
However, if the data to be announced in the coming days show that growth and inflation will remain strong, stock and bond markets may fall further.
3. Eurozone inflation data
While it is certain that the European Central Bank (ECB) will raise interest rates by 50 basis points at the meeting to be held in mid-March, the first data to be announced on Euro Zone inflation will be followed closely, as what will happen after this date is still controversial.
A flash figure will be released for the entire Eurozone on Thursday, following preliminary February data from Germany, France, Spain and Portugal on Tuesday and Wednesday.
Price pressures ease: Eurozone annual inflation fell to 8.6% in January from 9.2% a month earlier, but eyes will likely remain on core inflation, which excludes volatile food and energy prices. Annual core inflation is expected to be 5.3%, the same level as it was in January.
With inflation still well above the ECB’s 2% target, Thursday’s numbers are unlikely to appease hawkish ECB officials who are pushing for continued aggressive rate hikes.
4. China data
PMI data, due Wednesday, will give investors insight into how China’s economic reopening is progressing, with early indications pointing to a rebound in consumer activity over the Lunar New Year holiday.
Optimistic data could spark enthusiasm for a reopening trade where optimism is fading. The CSI 300 Index has been largely flat this month after rising 7% in January.
Growth in the world’s second largest economy; Slowed to one of the worst levels in a decade in 2022 due to tight COVID-19 quarantines and restrictions, Beijing later abandoned its strict COVID-19 policy.
5. New earnings reports from the retail industry
Earnings results for high-profile retailers next week will provide more insight into the health of consumer spending and the impact of inflation on corporate profitability.
Target (NYSE:TGT) will report ahead of the opening Tuesday. Discount retailer Dollar Tree (NASDAQ:DLTR) will report ahead of the opening Wednesday, along with home improvement chain Lowe’s (NYSE:LOW). On Thursday, Macy’s (NYSE:M) and Best Buy (NYSE:BBY) will announce their results before the market opens, while Nordstrom (NYSE:JWN) and Costco (NASDAQ:COST) will announce their results after the close.
Results released last week by Walmart (NYSE:WMT) and Home Depot (NYSE:HD) showed that customers are reducing their spending due to rising prices.
According to estimates, Target’s sales are expected to increase 2.7% last fiscal year, well below Walmart’s reported 6.7% increase.
Lowe’s may feel even more of a nuisance than its big competitor, Home Depot, as it tends to attract more “do-it-yourself” customers rather than inflation-resistant professional builders and contractors.