A series of U.S. data and euro zone inflation figures will shed more light on the short-term path of interest rates.
China’s PMI data will show how the economic recovery of the world’s second-largest economy is going after the Lunar New Year festivities.
Equity markets will keep an eye on the Federal Reserve’s monetary policy and retail sector performance.
Here’s what you need to know to start the week.
1. U.S. Data
Friday’s official U.S. data, which point to a strong pickup in consumption and an acceleration in inflation, fuels concerns about a “no landing” economic scenario, in which strong growth keeps inflation high and prompts the Federal Reserve to keep rates higher longer.
This week, investors will get new data on the strength of the economy, including reports on Durable goods orders, Consumer confidence and Home Sales. ISM Sector Reports manufacturer and of the services corresponding to February will be published on Wednesday and Friday, respectively.
Tuesday’s consumer confidence data could be of particular interest, as they offer insight into households’ views on economic forecasts and inflation expectations. Economists expect a rebound to 108.5, following the index’s unexpected drop in January.
It will be a quiet week for Federal Reserve spokespeople, with Governor Chris speaking Waller on the economic outlook on Thursday.
2. Hard landing?
After a strong performance in January, stocks have retreated this month as a series of economic data has fueled expectations that the Federal Reserve will have to raise interest rates and keep them high for longer than expected.
Wall Street’s major indexes post their biggest weekly drop of 2023 following Friday’s heavy losses. For the index Dow Jones Industrial Average, the 3% drop marked its biggest weekly decline since September. The S&P 500 and the Nasdaq Composite fell by 2.7% and 3.3%, respectively.
Cleveland Fed President Loretta Mester said Friday that the Fed should raise interest rates more than necessary if it is necessary to keep inflation fully under control.
But if data over the next few days indicate that growth and inflation remain solid, stock and bond markets could fall further.
3. Inflation data in Europe
Although a further rate hike of 50 basis points at the next meeting of the European Central Bank in mid-March is almost certain, what happens thereafter is still up for debate, so this week’s preliminary data on inflation in the euro zone have raised great expectations.
Preliminary data for February Germany, France, Spain and Portugal will be published on Tuesday and Wednesday, followed by the figure flash of the entire euro zone on Thursday.
Price pressures are easing: the euro zone’s annual inflation rate fell to 8.6% in January, down from 9.2% the previous month, but the focus will be on core inflation, excluding volatile food and energy prices. Annual core inflation is expected to be at 5,3%, matching January’s reading.
With inflation still well above the ECB’s target of 2%, Thursday’s figures are unlikely to placate aggressive ECB officials, who are pushing for big rate hikes to continue.
4. China Data
Wednesday’s data from the PMI will give investors an idea of how China’s economic recovery is going, as initial signs point to a pickup in consumer activity during the Lunar New Year festive period.
Encouraging data could reignite enthusiasm for economic recovery — optimism seems to be fading right now. The index CSI 300 of A-shares remains virtually flat for the month as a whole, after rising 7% in January.
In 2022, growth in the world’s second-largest economy slowed to one of the worst levels in half a decade due to strict lockdown measures to contain COVID-19, before Beijing abandoned its strict zero-COVID policy.
5. More results from retailers
The results of major retailers this week will provide more insight into the state of consumer spending and the impact of inflation on business results.
The great Target chain (NYSE:TGT) will present its results before Tuesday’s opening. Discount retailer Dollar Tree will release its results Wednesday ahead of opening, as will reform chain Lowe’s (NYSE:LOW)., Macy’s (NYSE:M) and Best Buy (NYSE:BBY) will release its results ahead of Thursday’s market open, while Nordstrom (NYSE:JWN) and Costco (NASDAQ:COST) shall do so after closure.
The results of Walmart and Home Depot Last week they indicated that buyers are cutting expenses in the face of rising prices.
Target’s sales last year are expected to increase 2.7 percent, well below Walmart’s 6.7 percent increase (NYSE:WMT).
Lowe’s could suffer more than rival Home Depot (NYSE:HD), as it tends to attract more DIY buyers than inflation-resistant builders and professional contractors.