The U.S. jobs report for January will be a key focus for markets this week as investors try to gauge how aggressively the Federal Reserve may act in its fight against inflation. Earnings are set to continue, with tech giants Amazon (NASDAQ:AMZN) and Google parent Alphabet (NASDAQ:GOOGL) set to report. Elevated market volatility looks set to continue and both the Bank of England and the European Central Bank are meeting. Here’s what you need to know to start your week.
U.S. jobs report
The U.S. is to release the January nonfarm payrolls report on Friday with economists forecasting that the economy added 155,000 jobs, slowing from 199,000 in December as the Omicron variant hit.
Indications of continued strength in the labour market could add to bets on how aggressive the Fed may be in tightening monetary policy in its battle to combat high inflation.
The Fed flagged a March rate hike after its policy meeting last week and Chair Jerome Powell acknowledged that officials may move even faster than the four rate hikes markets have already priced in for this year.
On Friday, Atlanta Fed President Raphael Bostic said the central bank could hike rates by as much as half a percentage point if warranted by economic data.
Goldman Sachs is forecasting that the Fed will hike rates five times this year, up from four previously, with a first hike expected in March, according to a note from its economists late on Friday.
Earnings
Another large batch of earnings reports is due during the week, including from heavyweights Alphabet and Amazon, on Tuesday and Thursday, respectively.
Tech stocks have come under pressure so far this year as investors have been more reluctant to pay hefty valuations for growth stocks amid rising yields as the Fed plans to tighten policy to tame inflation.
So far this earnings season investors have been focused on guidance, and the extent to which companies expect ongoing global supply challenges to affect their bottom line going forward.
Uneasy investors have punished companies such as Netflix (NASDAQ:NFLX), JPMorgan (NYSE:JPM) and Tesla (NASDAQ:TSLA) who delivered underwhelming results in recent weeks.
Other earnings of note this week include Meta Platforms (NASDAQ:FB), General Motors (NYSE:GM), Ford (NYSE:F), Exxon Mobil (NYSE:XOM), Bristol-Myers Squibb (NYSE:BMY) and Merck (NYSE:MRK).
Buy the dip?
The steep slide in U.S. stocks in January has prompted some investors to begin looking at equity valuations to see whether now is a good time to snap up shares at bargain prices.
The S&P 500 has dropped over 9% so far in 2022, while the tech-heavy Nasdaq stands in correction territory after a nearly 15% fall.
Buying after pullbacks paid off for many investors over the last two years, when ample pandemic-era stimulus boosted stocks to a series of fresh record highs. But with as many as five Fed rate hikes on the cards this year investors are having to come to terms with a new reality.
The market’s fall hadn’t been precipitous enough for Barclays strategists, who early last week declared in a note it was still “too early to buy the dip.”
On the other hand, the strength of fourth-quarter earnings results, which continue to roll in with the S&P 500 earnings season not yet at the halfway point, could bolster the case for investors looking to buy at a discount.
Bank of England rate hike
The BOE is expected to hike rates by another 0.25% at its upcoming policy meeting on Thursday, to curb inflation, which is running at its highest in thirty years.
In December the BOE became the world’s first major central bank to hike rates since the onset of the pandemic and market watchers will be keen to hear what Governor Andrew Bailey has to say about the future path of interest rates.
The expected rate hike will also mean that the bank’s threshold to begin trimming its balance sheet will have been met and this could get underway as soon as March.
Eurozone data, ECB meeting
The Eurozone is to release data on fourth-quarter GDP and January inflation figures ahead of Thursday’s ECB meeting. The GDP data is expected to show that economic growth slowed in the three months to December while inflation is expected to ease.
The ECB is diverging from the Fed and the BOE, with prospects for a rate hike remaining distant.
Market watchers are not expecting any changes to monetary policy from the ECB this week – instead ECB head Christine Lagarde is facing the challenge of communicating that policymakers are sticking to their hawkish stance on inflation while tamping down premature speculation on rate hikes.
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