What to watch this week [Video]

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Financial markets have been preoccupied with one idea in recent weeks: recession.

The week ahead will offer more insight into whether inflationary pressures are pushing businesses and consumers to pull back, potentially tipping the economy into recession.

The jobs report released on Friday in June cast doubt on the imminence of a general slowdown in the US economy. Last month, the US economy added 372,000 jobs while the unemployment rate held steady at 3.6%.

“The sharp increase of 372,000 in nonfarm payrolls in June appears to mock claims that the economy is heading towards, let alone already, a recession,” said Andrew Hunter, U.S. economist at Capital Economics.

Following the report, investors and economists largely agreed that continued strength in the labor market is setting the stage for another 0.75% increase in Federal Reserve interest rates later. this month. In the week ahead, investors’ attention will turn to Wednesday morning’s inflation data for clarity on this issue.

Economists estimate that headline inflation rose 8.8% last month, a rise that would be the highest since December 1981 and the highest inflation reading of this current cycle. Ethan Harris and the economics team at Bank of America Global Research noticed a monthly increase of more than 7% in energy inflation, pushing this data to a new high.

This reading on inflation, however, will come as energy and commodity prices have shown signs of moderating over the past few weeks. Crude oil is down more than 12% in the past month, while the price of commodities like corn, soybeans and wheat are down more than 20% through last Wednesday.

Some analysts have suggested that recession fears and high prices have started to drive demand destruction. Although JPMorgan analysts noted last week that since 1965 oil demand has declined in just 10 years, and even increased during the 1991 recession.

Harris and his team also wrote last week that whether or not the economy is in a recession is “irrelevant.”

“While the underlying economic momentum may very well be stronger than the headline GDP data suggests, complicating the ‘recession’ question, it seems clear that US economic momentum has slowed” , wrote Harris.

And this week’s calendar will allow investors to check how much this slowdown is weighing on businesses and consumers, with the June retail sales report released on Friday morning and updates on industrial production and business sentiment. consumers on the same day serving as highlights.

The coming week will also mark the start of the second quarter earnings season, with the usual early financial sector reporters setting the ball rolling.

JPMorgan Chase (JPM), Wells Fargo (WFC) and Citigroup (C) are among the big banks set to report results, while typical early-season reporters like PepsiCo (PEP) and Delta Air Lines (DAL) will also be closely monitored. signs of resilience or softening among US consumers.

JP Morgan CEO Jamie Dimon speaks during the Boston College Chief Executives Club luncheon in Boston, Massachusetts, U.S., November 23, 2021. REUTERS/Brian Snyder

Investors will also keep a close eye on the Treasury yield curve, where the 2-year yield is trading above the 10-year yield, an inversion that has historically preceded recessions. On Friday, the 2-year rate stood at 3.03% while the 10-year rate stood at 3.01%.

Meanwhile, stocks rallied last week as investors continue to try to undo the damage the portfolio suffered during the worst first six months to a year since at least 1970.

Still, the recent rebound in markets has been greeted with concern amid suggestions that the turnaround could signal the start of something bigger.

The 2-year rate stood above the 10-year rate on Friday, marking the first weekly settlement of an inverted yield curve since the summer of 2019. (Source: FRED)

The 2-year rate stood above the 10-year rate on Friday, marking the first weekly settlement of an inverted yield curve since the summer of 2019. (Source: FRED)

Mark Newton, head of technical strategy at Fundstrat, wrote in a note to clients on Friday that “technically the markets appear to be in resistance.”

“While July may prove choppy in the weeks ahead, it is still more likely than not that a move to new lows for 2022 will occur in late July as rates rally as the dollar remains fairly low. loud,” Newton wrote. “While I remain a long on the weakness, it’s hard for me to be confident in this near-term rally given the lack of participation and weak upside push so far. Need to stay defensive over the course of for the next 2-3 weeks until this churning runs its course.”

Economic calendar

Monday:

Tuesday: NFIB Small Business Optimism, June (93.2 previously)

Wednesday: Consumer Price Index, June, YoY (+8.8% expected, +8.6% previously); Core CPI, June, annual (+5.8% expected, +6% previously); IPC, June, MoM (+1.1% expected, +1% previously); Core CPI, June, MoM (+0.6% expected, +0.6% previously); Federal Reserve Beige Book

Thursday: First unemployment registrations (235,000 previously)

Friday: Retail Sales, June (+0.9% expected, -0.3% previously); Retail sales, control group, June (No growth expected, +0.1% previously); Empire State Manufacturing Index, July (-2.6 expected, -1.2 previously); Producer Price Index, June, MoM (+0.8% expected, +0.8% previously); Import price index, June, MoM (+0.7% expected, +0.6% previously); Industrial production, June (No growth expected, +0.1% previously); Capacity utilization, June (80.2% expected, 80.8% previously); University of Michigan Consumer Sentiment, Preliminary Reading, July (49 expected, 50 previously)

Earnings Calendar

Monday:

Before Market Open: No notable companies expected to report.

After market close: No notable companies expected to report.

Tuesday:

Before the market opens: PepsiCo (DYNAMISM)

After market close: No notable companies are expected to report.

Wednesday:

Before the market opens: Attached (QUICK); Delta Airlines (DAL)

After market close: No notable companies are expected to report.

Thursday:

Before the market opens: JPMorgan Chase (JPM); Morgan Stanley (MRS); Conagra (GAC), Bank of the First Republic (FRC); cintas (ETG)

After market close: American outdoor brands (AUGUST)

Friday:

Before the market opens: Wells Fargo (WFC); black rock (BLK); Citigroup (VS); BNY Mellon (BK); UnitedHealth (A H); progressive (PGR); American bank (USB); State Street (STT); PNC Financial (PNC)

After market close: No notable companies are expected to report.

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