Top 5 Things to Watch in Markets in the Week Ahead

Written by Noreen Burke – Next week will bring closely watched inflation numbers, while Federal Reserve Chair Jerome Powell and Vice President Lyle Brainard will testify at nomination hearings on Tuesday and Thursday, respectively. It also marks the start of the fourth-quarter earnings season with several major banks reporting on Friday. It appears that volatility will remain high in the stock markets after a volatile start into 2022 and Bitcoin Still under pressure. Here’s what you need to know to start your week.

  1. inflation data

Wednesday’s consumer price inflation data is expected to show the headline topped above 7% on an annual basis – fast approaching a four-decade high – with a rise well above 5% on an annual basis. Next day’s data is also expected to show a higher upside.

Inflation figures are likely to confirm why the Fed started its rate-raising cycle as early as March. Adding to the argument for faster tightening is Friday’s jobs report which indicated that the labor market is at or near the maximum employment limit.

While job growth slumped in December, the unemployment rate fell to a 22-month low, and wages rose strongly.

Inflation data will be followed by reports in December and on Friday.

  1. Powell’s testimony

On Tuesday, Fed Chairman Jerome Powell is scheduled to hold a hearing before the Senate Banking Committee to confirm his nomination for a second four-year term as Fed chair, while Fed Governor Lyle Brainard will appear before the same committee two days later for a confirmation hearing on her nomination. vice president.

Several Federal Reserve officials are scheduled to appear during the week, including Esther George, James Bullard, Loretta Meester, Charles Evans, Thomas Barkin and John Williams.

Their comments will be closely watched in the wake of the Federal Reserve’s meeting minutes last week which indicated that an “extremely tight” labor market and high inflation may require officials to raise interest rates sooner than expected.

  1. earnings

Earnings season begins in earnest next week as investors take a look at fourth-quarter results from several large banks, including JPMorgan Chase (NYSE:), City Group (NYSE 🙂 and Wells Fargo (NYSE:) before the market opens on Friday.

Massive earnings increases from US companies helped boost gains of 27% in 2021, but companies will likely struggle to publish similar numbers to the fourth quarter.

Earnings for Standard & Poor’s 500 companies are expected to jump 22.3%, according to Refinitiv data cited by Reuters — a solid increase, but still slower than seen in the first, second and third quarters.

Investors will be eager to know about inflation, whether companies believe the supply chain crisis that helped drive prices up last year will abate in the coming months and forecasts for 2022.

  1. Continuing volatility

Indications the Federal Reserve is ready to raise interest rates faster than expected as rising inflation battles turbulent markets in the first week of 2022 and volatility looks set to continue.

Last week saw a 0.3% drop, the S&P 500 shedding 1.9% and down 4.5%, while the benchmark yield in the US rose to a two-year high on Friday on expectations of a Federal Reserve interest rate hike.

“Sentiment has turned negative,” Jake Dollarhyde, CEO of Longbow Asset Management in Tulsa, Oklahoma, told Reuters. “At the moment, the market is nervous and in a good mood to sell at the first hint of bad news.”

Investors have been rotating into tech-heavy growth stocks and into value-oriented stocks, which they think might do better in a higher interest rate environment.

The high incidence of the Omicron variant of coronavirus also contributed to the risk aversion mood in the markets.

  1. Bitcoin

It has been under pressure since the start of the new year, dropping to its lowest level since late September amid a broader sell-off in cryptocurrencies driven by concerns about the prospect of a more hawkish Federal Reserve.

The world’s largest cryptocurrency by market capitalization has fallen more than 40% since hitting an all-time high of $69,000 in November, driven by expectations that the US central bank will raise interest rates sooner than expected.

More serious policy actions by the Federal Reserve would sap investors’ appetite for riskier assets.

“We are seeing widespread risk-off sentiment across all markets right now as inflationary concerns and interest rate hikes appear to be at the forefront of speculators’ minds,” Matthew Depp, COO of cryptocurrency platform StackFunds told Reuters.

“Liquidity in bitcoin has been very weak on both sides and there is a risk of a dip to the mid-30s in the short term.”

Bitcoin was also under pressure as the global computing power of its network fell sharply last week after the internet shutdown in Kazakhstan during the uprising that hit the fast-growing crypto-mining industry.

–Reuters contributed to this report