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Top 5 Things to Watch in Markets in the Week Ahead

Published 07/31/2022, 07:47 AM
Updated 07/31/2022, 08:27 AM
© Reuters

By Noreen Burke

Investing.com -- After data on Thursday showing that the U.S. economy is on the cusp of a recession this Friday’s monthly employment report will be even more highly anticipated than usual. The report is expected to show that the labor market remains robust, despite reports that some companies are cutting jobs and freezing hiring. Investors will also continue to digest a slew of earnings results with dozens of companies set to report in the coming week. Several Fed officials are set to speak, and their comments will also be closely watched. Meanwhile, the Bank of England is expected to accelerate the pace of rate hikes as it steps up efforts to curb inflation. Here’s what you need to know to start your week.

  1. Nonfarm payrolls

Friday’s nonfarm payrolls report for July will show whether the recent barrage of Fed rate hikes have impacted the labor market.

Analysts expect the economy to have added 250,000 jobs in July, moderating from June’s pace of 372,000, while the unemployment rate is expected to hold steady at a historic low of 3.6%.

 A smaller than expected number could bolster the view that the Fed may not be as aggressive as expected when it comes to interest rate hikes after Fed Chair Jerome Powell said last week that the central bank’s September rate decision will be data dependent.

The Fed hiked rates by 0.75% on Wednesday, the second hike in a row of that size.

After data last Thursday showed the U.S. economy contracted in the second quarter, equity markets were boosted by bets that interest rates would rise more slowly.

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  1. Fedspeak

Investors will get a chance to hear from several Fed officials this week, including Chicago Fed President Charles Evans, St. Louis Fed President James Bullard and Cleveland Fed President Loretta Mester. Their comments will be watched for any indications that a smaller rate hike may be on the cards in September after recent data pointing to economic weakness.

Given mounting fears over the prospect of a recession, market watchers will also be paying particular attention to the Institute of Supply Management’s manufacturing PMI on Monday, and the ISM services PMI on Wednesday, which are both expected to confirm that the economy is slowing.

The U.S. is also to release data on JOLTS job openings on Tuesday. While job openings have been easing in recent months they are expected to remain at elevated levels.

  1. Earnings deluge

Some better-than-expected earnings reports helped boost stocks last week and the deluge of earnings results is set to continue in the coming week with a broad range of companies, including Activision Blizzard (NASDAQ:ATVI), Caterpillar (NYSE:CAT), Uber (NYSE:UBER) and Eli Lilly (NYSE:LLY) reporting.

Positive forecasts from Apple (NASDAQ:AAPL) and Amazon (NASDAQ:AMZN) on Friday showed resilience in giant companies to survive an economic downturn.

Second-quarter U.S. corporate results have mostly been stronger than expected. Of the 279 S&P 500 companies that have reported earnings so far, 77.8% have exceeded expectations according to Reuters data.

Other companies reporting during the week include Loews (NYSE:L), Dupont De Nemours (NYSE:DD), Starbucks (NASDAQ:SBUX), Airbnb Inc (NASDAQ:ABNB), Advanced Micro Devices (NASDAQ:AMD), PayPal (NASDAQ:PYPL), Booking Holdings (NASDAQ:BKNG), eBay (NASDAQ:EBAY), CVS Health (NYSE:CVS), Moderna (NASDAQ:MRNA), Under Armour (NYSE:UAA), AMC Entertainment (NYSE:AMC), Yum! Brands Inc (NYSE:YUM), Robinhood (NASDAQ:HOOD) and Restaurant Brands (NYSE:QSR).

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  1. Stocks rally

U.S. stocks added to their recent rally on Friday, with all three major indexes gaining for the month and for the week.

The S&P 500 gained about 9.1% for July in its biggest monthly percentage gain since November 2020, while the Nasdaq jumped about 12.3% in July in its biggest monthly gain since April 2020.

Stocks were boosted by mainly upbeat earnings reports, along with investor speculation that the Fed may not need to be as aggressive with interest rate hikes as some had feared.

Despite the positive end to the month for stocks, Mark Haefele, chief investment officer at UBS Global Wealth Management, told Reuters investors should proceed with caution, noting: "In the near term, we think the risk-reward for broad equity indexes will be muted. Equities are pricing in a 'soft landing,' yet the risk of a deeper 'slump' in economic activity is elevated."

  1. Bank of England to accelerate rate hikes

The Bank of England is widely expected to hike rates by half a percentage point at its meeting on Thursday, which would be its largest hike since 1995.

Only three BoE officials voted in favor of a 0.5% rate hike at the bank’s last two meetings, but data since then has shown inflation hitting a four-decade high of 9.4%. It could hit 12% by October - six times the BoE target.

Governor Andrew Bailey has pledged to act forcefully if needed to get inflation down.

Elsewhere, the Reserve Bank of Australia is expected to hike rates by 0.5% at its upcoming meeting on Tuesday with inflation Down Under running at 6.1%, more than double the RBA’s 2-3% target.

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--Reuters contributed to this report

Latest comments

Green to day who was saying it will go in red big time hello surprise
There are many ways to get around printing paper money. It is not enough to solve the needs of the people and the government with money. Money conflict between producers and consumers is itself inflationary. Money complicates the issue.
The old and new inflation control solutions that are applied without testing at a smaller level are nothing but trial and error.
It the corona that started this and greedy
J Powell has it wrong since the beginning. He kept talking about "transitory" inflation until inflation showed to be resilient. Now, instead of ripping the band-aid, he served the market with a positive narrative and "neutral" story. The FED has been weak and behind the curve all along. A short recession is painful but much less than a persistent inflation. Because of FED's put and J Powell sloppiness, we are heading to stagflation and more hardship for everyone. Thanks J Powell...
so true... I reckon Powell is "cautions" thinking ahead of the elections so not want to ruin Biden's party elections, by showing the ppl the worse recession in 40 years happened under Biden's term
By what measure are we in the worst recession in 40 years? GDP? Unemployment? Maybe you don't know what your are talking abiutt.
  IF that is Powell's motivation, and I'm not saying it is, can/should we blame him?  Trump did threaten to fired him and end Fed's independence.
It had been a good July soo maybe a bad start August lets see the rate must up it good war in Europe people stop spending economy will drop an then we go up is that not normally glad i have been buying bavarian Nordic let sell some monkey’s box have a nice day folks god bless Ukrainischen people
So far fake financial journalism has put out numerous stories on Sell the news to drop the market tomorrow W...overlords have spoken for a red market tomorrow.
This is true! I was at the meeting of the overlords on Saturday. We were all sitting around the pool doing shots of adrenechrome and vaping placenta and JFK, Jr. said, let's put out numerous stories on sell the news to drop the markets. So, we did.
There was a lot of egative financial news last week as fifake financial journalism tried to get investors to sell blatant manipulation by big media conglomerates a d big money...let's see what happens this week.
Let me see if I understand fully your comment: Your belief is that the multitude of individuals, organizations and companies around the globe that comprise financial journalism, somehow conspired to act in unison to try to get the multitude of individuals, organizations and companies around the globe that comprise stock market investors to sell stock. Two questions: 1) How is this coordinated and synchronized? and 2) Why? How do all the people involved benefit?
  Most of the people criticizing the articles here are lacking in reading comprehension.
The ten most recent recessions, dating back decades, were declared based on 2 consecutive quarters of economic contraction. Everyone accepted the definition and the declaration. It wasn't contested. Until now. What changed?
Putin was not the president during any of the US' previous recessions?
We have an idiot overseeing the country. But all he fixed once the donald is back in the white house
Your premise is wrong.
So this web site has taken the White House lie hook line and sinker.  The cusp of a recession???  WE IN FACT ARE IN A RECESSION FOOLS!  Enough games, stick with the historical definition.  If this were a Republican they'd be calling it a great recession.  Enough woke, grow up!
0
We are in or not in a recession depending on whose definition of recession you use.  We are NOT in a recession based on official definition.
For some strange reason, some people think the potus was using the definition from the peanut gallery when he was talking about recession.
Interesting that Joe Biden tested negative for Covid Wed. thru Fri. while bad data dumped. Saturday he's sick again. Wouldn't want anything negative affecting the algos.
Man, there are some screwed up minds on this planet. Look out behind you! Boo!
Covid reinfection happens.   5.6% of omicron BA.2 subvariant cases were reinfection, and 10% for BA.10.
Whoever think we are free from a big recession is just wrong...
Ms. Burke is the master at gently bending the truth. Should apply for White House Press Secretary.
Trump can shoots the truth on 5th Ave and retrumplicans would still believe him.
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