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Top 5 things to watch in markets in the week ahead

Published May 28, 2023 07:12AM ET
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© Reuters

Investing.com -- With a tentative agreement in place to raise the U.S. debt ceiling investors will be turning their attention to the Federal Reserve's plan for interest rates. Friday's U.S. jobs report will be closely watched - a strong number would fuel expectations for another rate hike in June. Elsewhere, PMI data out of China is expected to add to the view that the recovery in the world's second-largest economy is faltering, while Eurozone inflation data is likely to add to pressure on the European Central Bank.

  1. Debt ceiling deal

Democratic President Joe Biden and top congressional Republican Kevin McCarthy reached a tentative deal late Saturday to raise the ceiling on U.S. government borrowing and avert a default that threatened to send shockwaves through the global economy.

But the deal still faces a difficult path to pass through the narrowly divided Congress before the government runs out of money to pay its debts, which the Treasury warned Friday will happen by June 5.

The long standoff on raising the debt ceiling has spooked financial markets, weighing on equities and forcing the United States to pay record-high interest rates in some bond sales, but for the most part investors had been expecting Washington to reach a deal, meaning a sustained rally in stock markets may be unlikely.

  1. U.S. jobs report

Economists are expecting Friday’s nonfarm payrolls report to show that the U.S. economy added 180,000 jobs in May. In April, U.S. job growth accelerated to add 253,000 with wage gains increasing solidly.

The jobs report will be one of the last pieces of data before the Fed’s June meeting. At its May meeting, the U.S. central bank signaled it was open to pausing its aggressive 14-month rate hiking campaign in June.

But since then, some Fed policymakers have said inflation does not appear to be cooling fast enough, a view that was bolstered by data on Friday showing that underlying core inflation jumped 4.7% in April, well above the Fed’s 2% target.

Markets are now pricing in a roughly 64% chance that the Fed raises rates by another 25 basis points at its June 14 meeting, according to Investing.com’s Fed rate monitor tool.

  1. Stock markets

U.S. stocks finished sharply higher on Friday ahead of the long weekend, with the U.S. stock market closed on Monday for the Memorial Day holiday.

Markets were boosted by hopes for a deal on the debt ceiling and a second day of strong gains in chip stocks amid optimism about artificial intelligence.

Some analysts said a deal on the debt ceiling getting done may give more reason for the Fed to feel confident about raising rates again.

Investors will be watching appearances from Fed officials during the week with Richmond Fed President Thomas Barkin and Philadelphia Fed President Patrick Harker, along with board member Philip Jefferson scheduled to speak.

  1. China PMIs

China is to release official PMI data on Wednesday, followed a day later by the private sector Caixin manufacturing PMI. The contraction in the manufacturing sector is expected to moderate slightly, while the rate of expansion in the stronger service sector is expected to slow.

This would chime with recent economic data which has pointed to a loss of momentum in the world’s number two economy amid weakening demand both at home and in the country’s major export markets.

Beijing has set a modest growth target of around 5% for this year. Earlier this month, Premier Li Qiang vowed more targeted measures to expand domestic demand and stabilize external demand in an effort to promote a sustained economic rebound.

  1. Eurozone inflation

The Eurozone is to release flash consumer price inflation data for May on Thursday which is expected to underline that the European Central Bank still has a long way to go in its battle to curb price pressures.

Headline inflation is currently running at 7% on a year-over-year basis while underlying annual inflation is currently 5.4%, both well above the ECB’s 2% target.

At its most recent meeting earlier this month, the ECB reiterated that it was very much in rate-hiking mode, saying "more ground" needs to be covered to tame inflation.

Data last Thursday showed that Germany, the bloc’s largest economy, entered a recession in the first quarter as high inflation hit consumer spending.

--Reuters contributed to this report

Top 5 things to watch in markets in the week ahead
 

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Comments (8)
Dave Jones
Dave Jones May 28, 2023 12:40PM ET
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Yeah that sustained deal hope rally really spooked the investors.
Neil Raghubar
Neil Raghubar May 28, 2023 11:23AM ET
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Fed WILL NOT increase rate in June. Simple reasons.
Charles Manson
Charles Manson May 28, 2023 9:54AM ET
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The "AI Boom" will not prevent a Recession. Novel Tecnologies have always been replaced by other Technologies. AI is great for those who fail to do their homework and have lost the ability to think for themselves. Not a Pessimist ... Just a realist. Elon and I have discussed this at length.
Rob Whalen
Rob Whalen May 28, 2023 9:54AM ET
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Recession already hit all of 2022
Brad Albright
Brad Albright May 28, 2023 9:54AM ET
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Recession? By what measures?
Ron Te
Ron Te May 28, 2023 9:54AM ET
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AI is far more capable than just chatGPT. IT IS JUST COMING MAINSTREAM. it may help reduce job mkt tightness. Elon is seeing recession as demand for cars going down, people can’t afford EV, like consumer. Is scaling down needs. But not full scale recession. It is good consumers consume less, relax more with AI. Good for the planet. It will be ideal. Things should get better later this year..
Dave Jones
Dave Jones May 28, 2023 9:54AM ET
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How's them rockets coming along?
Charles Manson
Charles Manson May 28, 2023 9:45AM ET
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Clean the SLATE. We need to DEFAULT.
Joe Woidich
Joe Woidich May 28, 2023 9:45AM ET
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Trump's familiar with bankruptcy. Perhaps that's his plan for the U.S.
Jake Vee
Jake Vee May 28, 2023 9:45AM ET
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You do realize biden is president, right?
Warm Camp
Warm Camp May 28, 2023 7:50AM ET
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The only impact on the market that the debt ceiling had so far was pushing the market higher. One can expect some buy-rumor-sell-news effect next week, if the deal is finalized, but it cannot be big. Other than this, nothing changed. The market will remain chaotic.
Gothic Serpent
gothicserpent May 28, 2023 7:50AM ET
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Sea of green ahead. NVDA and MRVL and the entire AI boom will prevent a recession. Enjoy the ride. I hope you don't have a fear of missing out, hopefully you invested in January! :)
Warm Camp
Warm Camp May 28, 2023 7:50AM ET
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Gothic Serpent  I am always invested.
Gothic Serpent
gothicserpent May 28, 2023 7:50AM ET
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Warm Camp  That's good.
jason xx
jason xx May 28, 2023 7:41AM ET
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Guess what I hate to ruin your day but the fed can hike 25 even 50 more basis points and markets can still rally since they are already so low to begin with. The more you bears keep shorting the higher it will go Not that I wouldn't mind a buying opportunity but 2022 happened and you shouldn't expect it again
Gothic Serpent
gothicserpent May 28, 2023 7:41AM ET
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I echo this. Shorting is folly. Please stop short selling our markets. The AI / tech boom this year is going to save our country from a recession and the 2022 dip is the last we will see for a while.
Robert Cox
Robert Cox May 28, 2023 7:41AM ET
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So low? All three major indexes are near 52wk highs while the Russell has only climbed a few percent from the January lows. All of this has been prompted by two companies meetings expectations while the majority have missed and the belief the Fed will cut rates just because WS wants it to and without any causal shocks.
Chris Beckmann
Chris Beckmann May 28, 2023 7:41AM ET
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Gothic Serpent When liquidity goes missing, AI cant help. 6 Month rally doesnt continue forever. Nasdaq target is around 14.800, there i would be careful to buy Nasdaq! As this article is also about Dept Ceiling. 2nd Month in a row US spends more then income. What would happen to you, if you spend more then you have. 1.000$ in cash but 5XX.XXX$ of dept? There will be a bear rally soon. just a matter of time! But we are getting closer
jason xx
jason xx May 28, 2023 7:36AM ET
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How come you only quote core inflation and leave out that headline pce fell a full percentage point a month ago? According to you bears and naysayers the market has been just about to collapse for the last 52 weeks minimum.
jason xx
jason xx May 28, 2023 7:30AM ET
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We don't need your ad libs about a rally being likely or not. Everyone has their own opinions without needing further manipulation
Jake Vee
Jake Vee May 28, 2023 7:30AM ET
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What we don’t need is your inane biased, absurd comments.
 
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