With US stocks on the threshold of a bear market, investors will be looking to the Federal Reserve’s meeting minutes on Wednesday for more ideas on the central bank’s policy response to rising inflation. Retail earnings will be in the spotlight after disappointing results from major retailers last week that rocked markets already battered by concerns about inflation, rising interest rates, geopolitical uncertainty caused by the war in Ukraine and a possible recession. US data on personal income and spending – which contains the Fed’s preferred inflation measure – will be the highlight of the economic calendar, while PMI data from the Eurozone and UK will also be closely watched. Here’s what you need to know to start your week.
Federal Reserve meeting minutes
Investors are hoping that Wednesday’s Federal Reserve meeting minutes will provide some clues about whether the US central bank can rein in the most aggressive inflation in four decades without pushing the economy into recession.
While Fed Chair Jerome Powell is confident the central bank can make a “soft landing”, Wall Street is not convinced the Fed can pull it off, with warnings of a possible recession.
Strategists at Goldman Sachs (NYSE:GS) have forecast a 35% chance of the US economy entering a recession in the next two years, while Wells Fargo analysts expect a mild US recession at the end of 2022 and early 2023.
The Fed has already raised rates by 75 basis points since March, and markets are pricing in a 50 basis point rate hike in June and July.
Powell pledged to raise interest rates as much as necessary to tame inflation. The minutes will show how persistent policy makers expect inflation to be and whether the economy is resilient enough to face tighter monetary policy.
Investors will brace for earnings reports from Costco Wholesale Corp (NASDAQ:COST), Dollar General (NYSE:DG) and Best Buy Co (NYSE:BBY) next week after disappointing results from major retailers last week triggered a stock fallout. He raised concerns about the outlook for the economy.
Walmart Stores (NYSE:WMT), the largest retailer and competitor Target Corp (NYSE:TGT) reported that while in-store shopping was still strong, high inflation was beginning to hurt the purchasing power of US consumers.
While Wall Street brokers were anticipating pressure on earnings from rising fuel costs, analysts said they were surprised by the rapid decline among consumers and the shift toward buying lower-margin fundamentals instead of more profitable general merchandise.
Analysts said the scale of the inventory build-up and the heavy discounting by retailers came as a bit of a shock.
US stocks are on the threshold of a bear market – considered a drop of at least 20% from the closing high.
The S&P 500 ended Friday 19% lower from its record closing high on January 3, and the Nasdaq is down more than a quarter from its November 2021 peak.
Markets have been pressured downward by fears of rising inflation, Fed optimism and economic growth prospects. Adding to the selling was the war in Ukraine, which drove up the price of oil and other basic commodities.
While investors looked at various metrics to determine when markets would turn higher, including the CBOE Volatility Index, also known as the Wall Street Fear Barometer. While the index is higher compared to its long-term average, it is still below levels reached in other major sell-offs.
Read: US stocks will continue to fall, when will it stop? Here are 5 signs
The US will release April data on personal income and spending on Friday. The report also contains the Fed’s core inflation measure, the core PCE price index. Economists expect the data to show that spending remained strong last month despite rising inflation.
The economic calendar also includes a report on durable goods orders, which economists expect to hold steady, as well as data on initial jobless claims and revised numbers for first-quarter GDP, which are expected to be revised slightly upward.
Meanwhile, data on new home sales may indicate a slowdown in the housing market as mortgage rates rise and consumers become more cautious.
The UK and Eurozone will release what will be closely watched PMI data this week.
While Eurozone PMI data surprised the upward trend in April, with services supporting the reopening after the Omicron wave, this month’s data will shed more light on how long consumers will continue to spend on services as prices rise.
Meanwhile, Germany’s Evo Business Climate Index for May, due on Monday, is expected to show a decline.
UK PMI data is expected to indicate lower demand in the services sector this month. Bank of England Governor Andrew Bailey is scheduled to speak on Monday.
–Reuters contributed to this report