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 scrutinized 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. Economists are forecasting a 0.8% increase after a 0.7% rise in March, despite higher inflation.
The U.S. is also to release regional data on manufacturing activity along with reports on housing starts and existing home sales. Housing data is expected to cool as a result 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 each of 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.
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 and home improvement giant Home Depot are both due to report fiscal first-quarter earnings before the market open on Tuesday. Target and Lowe’s are scheduled to report ahead of the open on Wednesday, followed by Macy’s 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.
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 clearer indications that stocks can mount a sustained rally.
“Too many people right now are trying to pick a bottom and that’s 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.”
Investors will be closely watching crypto assets in the week ahead after a volatile week last week, dominated by the collapse in 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, and are the main medium for moving money between cryptocurrencies or for converting balances to fiat cash.
Ratings agency Fitch said last week 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 broad-based selloff of risk assets amid concerns over elevated inflation and rising interest rates, but wider financial markets have so far seen little knock-on effect from the cryptocurrency crash. Fitch said that weak links to regulated financial markets will 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 leaped to 9.1% on a year-over-year basis in April, in what would be the largest jump in annual inflation since 1980 and the fastest rate of inflation 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 labor market, adding to wage and price pressures.
In the Eurozone, European Central Bank President Christine Lagarde is to speak on Tuesday, while the ECB is to publish its latest meeting minutes on Thursday.