©Reuters
By Noreen Burke
Investing.com — After a week that shook financial markets as central banks and governments stepped up their fight against inflation, investors will brace themselves for renewed volatility in the coming week. Several Federal Reserve officials are set to speak, fresh off their third straight 75 basis point rate hike with no sign of abating. The highlight of the US economic calendar will be Friday’s personal income and spending data, which includes the Fed’s preferred indicator of inflation. In the euro zone, Friday’s inflation data is likely to put pressure on the European Central Bank. Earlier, ECB President Christine Lagarde is scheduled to testify before lawmakers in Brussels on Monday, while the results of Sunday’s elections in Italy will also be closely monitored. The yen will remain in focus after the Bank of Japan intervened in FX markets. Meanwhile, Friday’s Chinese PMI data will provide a glimpse into the health of the world’s second largest economy. Here’s what you need to know to start your week.
- Fedspeak, US data
St. Louis Fed Chair James, Cleveland Fed Chair Loretta, Chicago Fed Chair Charles Evans, Atlanta Fed Chair Raphael Bostic and Fed Vice Chair Lael are all set to speak throughout the week, with investors alert for clues get if a fourth consecutive 75 bps is coming up in November.
The economic calendar includes reports on , as well as dates on and .
The highlight of the economic calendar will be the August and Friday data, which includes the PPI, the Fed’s preferred measure of inflation.
Economists expect the annualized increase to be modest given the recent drop in fuel costs, but those excluding food and energy are expected to increase.
- Stock clearance sale
Wall Street’s main indices suffered heavy losses last week, falling 5.03% – the second straight week down more than 5% – while down 4.77% and down 4%.
The Dow narrowly avoided engaging in a bear market with the S&P 500 and Nasdaq.
A slide in bond markets added pressure on equities as investors adjusted their portfolios to a world of persistent inflation and rising interest rates. Investors were caught off guard after expectations that high US interest rates would continue into 2023.
While the latest data suggests the US economy remains comparatively strong, investors fear that Fed tightening will plunge the economy into recession.
“We’re having everyone reassess exactly how far the Fed is going to go and that’s concerning for the economy,” Ed Moya, senior market analyst at OANDA, told Reuters on Friday.
“It’s becoming the base case that this economy is going to have a hard landing and that’s a terrible environment for US equities.”
In addition to tightening financial conditions around the world, market sentiment has been hit hard by a number of other issues, including the Ukraine conflict, Europe’s energy crisis and the COVID-19 flare-up in China.
- Eurozone CPI
The euro zone is due to release data for September on Friday, with economists expecting headline inflation to accelerate to a new record high of 9.6%, keeping pressure on the ECB as it grapples with how strong interest rates will rise in the face of a looming Recession.
Before that, ECB President Christine Lagarde is due to testify before the Economic and Monetary Affairs Committee in Brussels on Monday, where she is likely to take questions about how the central bank plans to conduct the fight against inflation as the bloc faces the prospect of a recession .
Investors will also be watching Sunday’s results, which are expected to result in the country’s most right-wing government since World War II.
European Union leaders, who want to remain united after Russia invaded Ukraine, are concerned that Italy will be a more unpredictable partner, while financial markets will be worried about the new government’s ability to manage a debt burden of around 150% of GDP to manage.
- Yen intervention
Japan’s authorities finally had enough of the yen’s weakness on Thursday as they weakened the yen for the first time since 1998.
The dollar posted its first weekly gain of 0.3% in over a month after the move against the dollar.
But the dollar is up more than 20% against the yen this year as the Bank of Japan stands by its commitment to ultra-low interest rates, while the Fed is expected to continue aggressive rate hikes until inflation is brought under control.
So the case for a strong dollar remains. Japan, along with neighbors China and Korea also pushing back the dollar, could find itself battling fundamentals, the market and the Fed.
is scheduled to deliver a speech on Monday in which he is expected to provide further insight into Japan’s decision to intervene.
- China PMIs
China is due to release data on Friday, which will be closely watched to see if the economic recovery that has started in September continues.
Recent economic data pointed to resilience in August, with faster-than-expected growth in factory production and retail sales underpinning a weak recovery, but a deepening housing slump weighed on the outlook.
With few signs that China is about to ease its zero-COVID policy significantly anytime soon, some analysts expect the world’s second-biggest economy to grow just 3% this year, which would be the slowest since 1976 if counted excluding the 2.2% growth during the first COVID hit in 2020.
China has announced a wide range of economic support measures since late May, but the dollar’s rapid decline against the US dollar has complicated the case for looser monetary support.
–Reuters contributed to this report
