Dubai: Ahmed Al Bashir
Consumer inflation data and the start of the second-quarter earnings season could be catalysts leading to a bumpy ride in the markets this week, as we are on a date with PepsiCo’s results, which will be the first major report on Tuesday, with Delta Airlines results on Wednesday. , while we will see the results of “Morgan Stanley” and “JPMorgan Chase” on Thursday, followed by the revenues of “Wells Fargo”, “Citigroup” and “BNC Financial” on Friday.
A batch of inflation reports are expected to affect the markets as they help determine how aggressive the Federal Reserve is in its fight to cool inflation.
June CPI results will also be released on Wednesday, and economists expect price inflation to be higher than in May, which came in at 8.6% y/y.
“CPI inflation is expected to be higher, mainly due to higher energy prices,” said Peter Bokfar, chief investment officer at Bleakley Consulting Group, adding that core inflation, excluding food and energy prices, could be lower.
West Texas Intermediate crude futures also rose to $122 a barrel in June, but fell to $105 a barrel last Friday.
There are also the June Producer Price Index results to be released on Thursday, while investors are closely watching the University of Michigan Consumer Confidence report for July. This report includes consumers’ expectations about future inflation, and is an important metric that the Federal Reserve is monitoring. Also on Friday will be the release of retail sales for June, another measure of the consumer.
The new inflation data comes on the heels of Friday’s strong jobs report. In June, the US economy added 372,000 jobs, 120,000 more than expected. Strategists say the report bolstered expectations that the Federal Reserve will raise interest rates by another 75 basis points later this month.
The main question for the markets is when will inflation peak? It is already continuing to rise at much higher levels than the Fed initially expected.
“I think the risk to the markets is the fact that inflation may not have peaked yet, although I think the markets are still hopeful that inflation will slow,” said Michael Aaron, senior investment analyst at State Street Global Advisors.
The profits of the second quarter of the companies listed in the S&P 500 index are expected to grow by 5.7%, according to the data of the “Refinitiv” platform, although the estimates for the third and fourth quarters tend to decline slightly, but they are still at 10.9% and 10 .5%, respectively.
“I think the market is preparing for a challenging earnings quarter, while the amount of volatility that will result is not clear yet,” Aron added. He said that companies will continue to make profits, but not as much as the past quarters, and he expects companies to reduce their future financial targets, explaining, “I think the earnings season will be disappointing, and it will be interesting to see how the market reacts to that.”
Stocks last week saw a better performance, with the S&P up 1.9% and the Nasdaq up 4.5%.
The utilities and energy sector was the worst performing sector during the week, while the S&P luxury goods index, which benefits from lower oil prices, rebounded more than 4.5% over the week.
The 10-year Treasury yield hit 3.07% on Friday, but the two-year bond yield crossed the 10-year mark this past week for the third time since late March. The result is what is called an inverted yield curve, which sometimes indicates a recession. The two-year Treasury yield was 3.11% last Friday afternoon.