Top 5 Things to Watch in Markets in the Week Ahead

By Noreen Burke — With US stocks on the threshold of a bear market investors will be looking to Wednesday’s Federal Reserve meeting minutes for more insights on the central bank’s policy response to soaring inflation. Retail earnings will be in the spotlight after disappointing results from major retailers last week rattled markets are already hard hit by worries over inflation, rising interest rates, geopolitical uncertainty stemming from the war in Ukraine and the prospect of recession. US data on personal income and spending – which contains the Fed’s favored measure of inflation – will be the highlight of the economic calendar, while PMI data out of the Eurozone and UK will also be closely watched. Here’s what you need to know to start your week.

  1. Fed minutes

Investors will be hoping that Wednesday’s Fed can offer some clues about whether the US central bank can curb the most aggressive in four decades without tipping the economy into recession.

Fed Chair Jerome Powell is confident the central bank can achieve a “soft landing”, but Wall Street isn’t convinced the Fed can pull it off, with warnings over the prospect of a recession piling up.

Goldman Sachs strategists have predicted a 35% chance of the US economy entering a recession in the next two years, while Wells Fargo analysts expect a mild US recession at the end of 2022 and early 2023.

The Fed has already raised interest rates by 75 basis points since March and markets are pricing at 50 basis point

rate hikes

in June and July.

Powell has vowed to raise rates as high as needed to tame inflation. The minutes will show how persistent policymakers expect inflation to be and whether the economy is resilient enough to face much tighter monetary policy.

  1. Retail earnings

Investors will be bracing for earnings reports from Costco (NASDAQ:), Dollar General (NYSE:) and Best Buy (NYSE:) in the coming week after disappointing results from big retailers last week hammered stocks, adding to fears over the outlook for the economy.

Walmart (NYSE:), the nation’s largest retailer and rival Target (NYSE:) reported that while store traffic was still strong, high inflation has started to erode the purchasing power of US consumers.

While Wall Street brokers were expecting profits to be pressured by soaring fuel costs, analysts said they were caught off guard by the rapid retrenchment among consumers and shifts toward buying lower-margin basics instead of more profitable general merchandise.

The extent of inventory buildup and heavy discounting by retailers was also a bit of a shock, analysts said.

  1. Bear market?

US stocks are on the threshold of a bear market – considered as a drop of at least 20% from a closing high.

The ended Friday down 19% from its January 3 record closing high and the down more than a quarter from a November 2021 peak.

Markets have been pressured lower by worries over surging inflation, a hawkish Fed and the outlook for economic growth. Adding to the selloff has been the war in Ukraine, which has added to spikes in oil and other commodity prices.

Investors have looked at various metrics to determine when markets will turn higher, including the , also known as Wall Street’s fear gauge. While the index is elevated compared to its long-term average, it is still below levels reached in other major selloffs.

  1. Economic data

The US is to release April data on and on Friday. The report also contains the Fed’s primary gauge of inflation, the . Economists are expecting the data to show that spending remained solid last month despite high inflation.

The economic calendar also features a report on , which economists expect to remain firm, as well as data on and revised figures for first quarter , which are expected to be revised slightly higher.

Meanwhile, data on may point to cooling in the housing markets as mortgage rates rise and consumers grow more speculative.

  1. PMI data

The UK and the Eurozone are to release what will be closely watched PMI data this week.

While Eurozone PMI data surprised to the upside in April, with services boosted by the reopening following the Omicron wave, data for this month will cast more light on how long consumers will keep spending on as prices surge.

Meanwhile, Germany’s for May, due out on Monday is expected to show a decline.

UK PMI data is expected to point to a reduction in demand in the sector this month. Bank of England Governor is due to speak on Monday.

–Reuters contributed to this report