It’s set to be a busy week in markets, despite being a short one, with U.S. inflation data due and the first-quarter earnings season getting underway. Inflation could hit fresh highs, while bank earnings are expected to decline. The ECB is to meet as it grapples with record-high eurozone inflation and economic uncertainty stemming from the war in Ukraine. Central bank meetings in both Canada and New Zealand this week will also underline the worldwide effort to contain inflation. Here’s what you need to know to start your week.
S. CPI
February’s consumer price inflation reading of 7.9% was the largest annual increase in 40 years and U.S. data on Wednesday is expected to show that CPI rose by an annualized 8.5% in March as the war in Ukraine sent commodity prices sky-high.
A strong inflation reading would bolster the case for more aggressive rate hikes by the Federal Reserve, likely adding to investor concerns that tighter monetary policy could act as a drag on the economy.
The Fed hiked rates by a quarter of a percentage point in March and last week’s minutes from that meeting indicated that more substantial rate hikes and a balance sheet runoff are probably on the cards in the coming months as policymakers try to prevent high inflation from becoming entrenched.
Economic Data
Aside from the CPI numbers, the U.S. is set to release data on producer price inflation on Wednesday. The latest figures on initial jobless claims are due for release on Thursday along with data on retail sales and consumer sentiment.
Figures on industrial production and the Empire State manufacturing index will be released on Friday, which will be the Good Friday holiday.
Several Fed policymakers are also scheduled to speak during the week.
Fed Governor Michelle Bowman, Fed Governor Christopher Waller, Atlanta Fed President Raphael Bostic and Chicago Fed President Charles Evans will be speaking Monday.
Fed Governor Lael Brainard and Richmond Fed President Tom Barkin are to deliver remarks at events on Tuesday, while Cleveland Fed President Loretta Mester and Philadelphia Fed President Patrick Harker are to speak on Thursday.
Bank Earnings
Big U.S. banks will kick off the first-quarter earnings season this week and analysts are expecting financial sector earnings to decline from a year ago. Investment bank revenues are taking a hit in the wake of Russia’s invasion of Ukraine, while some banks are making provisions for losses related to Russia.
JPMorgan (NYSE:JPM), the largest U.S. bank, is reporting on Wednesday, while results from Goldman Sachs (NYSE:GS), Morgan Stanley (NYSE:MS), Citigroup (NYSE:C) and Wells Fargo (NYSE:WFC) will follow on Thursday.
Bank shares have performed badly so far this year, losing 11% against the S&P 500’s 6% decline.
Bank executives will likely be pressed for their view on whether the U.S. economy can continue to grow against the background of the economic fallout from the war in Ukraine and a more aggressive Federal Reserve.
ECB
The ECB is to hold its latest policy-setting meeting on Thursday and while euro area inflation is running at a record high 7.5%, fueled in large part by accelerating energy costs, policymakers are reluctant to tighten policy amid uncertainty over the impact of the war in Ukraine on the bloc’s economy.
But with inflation still showing no signs of peaking, calls for rate hikes by the more hawkish members of the ECB’s governing council may become more difficult to ignore.
Market watchers increasingly expect the ECB to raise interest rates this year.
In March the central bank announced a reduction in its bond-buying stimulus program that would see the program end in September. At the same time, it said an interest rate increase could follow “some time” after the end of bond purchases.
Inflation Fight
Central banks in both Canada and New Zealand are both set to meet on Wednesday, with market watchers expecting officials at both banks to deliver their largest rate hikes in 20 years amid soaring inflation worldwide.
According to data compiled by Reuters, markets are pricing in a 90%-plus chance of a half a percentage point rate hike from the Reserve Bank of New Zealand and a better-than-80% likelihood of the Bank of Canada doing the same.
With Canadian inflation seen above target until 2024, another half percentage point hike may come in June. New Zealand delivered a quarter percentage point rate hike in February — its third — and flagged the possibility of bigger rises ahead.
