Top 5 things to watch in markets in the week ahead

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By Noreen Burke

Investing.com -- A raft of U.S. data and Eurozone inflation numbers will give more insight on the near-term path of interest rates. PMI data from China will show how the reopening of the world's number two economy is faring after the Lunar New Year holidays. Equity markets will be on the alert for Fed hawkishness and more retail earnings are on tap. Here's what you need to know to start your week.

1. U.S. data

Official data on Friday pointing to a strong rebound in consumer spending and accelerating inflation added to concerns over a "no landing" economic scenario in which strong growth keeps inflation elevated and prompts the Federal Reserve to keep rates higher for longer.

Investors will get fresh insights into the strength of the economy this week with a raft of data due, including reports on durable goods orders, consumer confidence and home sales. The ISM manufacturing and service sector reports for February will be released on Wednesday and Friday, respectively.

Tuesday's consumer confidence data may be of particular interest, offering a glimpse into households' views on economic prospects and inflation expectations. Economists are expecting an uptick to 108.5 after the index unexpectedly fell in January.

It’s set to be a quiet week for Fed speakers with the main highlight being Governor Chris Waller’s speech on the economic outlook on Thursday.

2. Hard landing?

After a strong performance in January, stocks have retreated this month as a raft of economic data fueled expectations that the Fed will need to push interest rates higher and keep them elevated for longer than previously seen.

Wall Street's main indexes posted their biggest weekly drop of 2023 after sharp losses on Friday. For the blue-chip Dow Jones Industrial Average the 3% fall was its biggest weekly decline since September. The S&P 500 and Nasdaq Composite were down 2.7% and 3.3%, respectively.

Cleveland Fed President Loretta Mester said Friday the Fed should raise interest rates higher than necessary if need be to get inflation fully under control.

But if data in coming days indicates that growth and inflation remain robust, equity and bond markets may turn lower still.

3. Eurozone inflation data

While another 50-basis point rate hike at the European Central Bank’s upcoming meeting in mid-March is almost certain, what happens beyond then is still up for debate, so this week’s preliminary data on Eurozone inflation will be closely watched.

Preliminary February data from Germany, France, Spain and Portugal are due on Tuesday and Wednesday, followed by the flash number for the whole euro area on Thursday.

Price pressures are easing: the annual rate of inflation in the bloc eased to 8.6% in January from 9.2% a month earlier, but the focus will likely stay on core inflation, which strips out volatile food and energy prices. Annual core inflation is expected to come in at 5.3%, matching January’s reading.

With inflation still well above the ECB’s 2% target, Thursday’s numbers are unlikely to placate hawkish ECB officials who are pushing for aggressive rate hikes to continue.

4. China data

Wednesday’s PMI data will give investors insight into how China’s economic reopening is faring, with initial indications pointing to a rebound in consumer activity during the Lunar New Year holiday period.

Upbeat data could revive some enthusiasm for the reopening trade - where optimism seems to be fizzling out. The A-share blue-chip CSI 300 Index is largely flat on the month after surging 7% in January.

Growth in the world’s second-largest economy slowed to one of the worst levels in half a decade in 2022 due to stringent COVID-19 lockdowns and curbs, before Beijing abandoned its strict zero-COVID policy.

5. More retail earnings

Earnings results from high-profile retailers in the coming week will give more insight into the health of consumer spending and the impact on company bottom lines from inflation.

Big box retailer Target (NYSE:TGT) is due to report ahead of the open on Tuesday. Discount retailer Dollar Tree (NASDAQ:DLTR) is set to report ahead of the open on Wednesday, along with home improvement chain Lowe's (NYSE:LOW). On Thursday Macy's (NYSE:M) and Best Buy (NYSE:BBY) are due to report before the market open, while Nordstrom (NYSE:JWN) and Costco (NASDAQ:COST) will release results after the close.

Results from Walmart (NYSE:WMT) and Home Depot (NYSE:HD) last week indicated that shoppers are cutting back on spending amid soaring prices.

Sales for last fiscal year at Target are expected to rise 2.7%, according to estimates, well below the 6.7% rise that Walmart reported.

Lowe's could feel a bigger pinch than larger rival Home Depot , as Lowe's tends to draw more do-it-yourself shoppers than inflation-resistant professional builders and contractors.

--Reuters contributed to this report