Top 5 Things to Watch in Markets in the Week Ahead

Top 5 Things to Watch in Markets in the Week Ahead

Corporate earnings step to the center stage this week. Last week’s bank earnings saw mixed results, and the CPI report overshoot and subsequent Federal Reserve back and forth over the size of the next interest rate hike swamped any individual company news.

With less economic data in the U.S. that will directly affect Fed policymaking, and companies like Tesla, Netflix, Verizon, J&J, and Bank of America all reporting, earnings may have a bigger impact. Meanwhile, the European Central Bank has a closely watched interest rate decision on Thursday, and several CPI reports are due out for anybody craving more inflation news after last week’s upside surprise.

Here’s what you need to know for the week ahead in financial markets.

Blue-Chip Earnings

2022 has been the year of value recovery, and several blue-chip heavyweights are on tap to share earnings news this week.

Bank of America Corp (NYSE:BAC) and Goldman Sachs Group Inc (NYSE:GS) report earnings Monday morning to round out the major money center banks, coming after JPMorgan (NYSE:JPM) sounded a cautionary note and Citigroup Inc (NYSE:C) revived market optimism.

Johnson & Johnson (NYSE:JNJ) and Novartis AG ADR (NYSE:NVS) report Tuesday, with both healthcare companies outperforming the market year to date. Abbott Labs (NYSE:ABT) reports on Wednesday, though it has struggled in part due to its role in the infant formula shortage in the U.S. Roche Holding AG (SIX:RO) reports Thursday before the U.S. open.

AT&T Inc (NYSE:T) reports on Thursday and Verizon Communications Inc (NYSE:VZ) follows on Friday, as telecoms have acted as a safe haven so far this year.

Philip Morris International Inc (NYSE:PM) (Thursday), Union Pacific (NYSE:UNP) (Thursday), American Express (NYSE:AXP) (Friday), HCA (NYSE:HCA) (Friday), and Schlumberger (NYSE:SLB) (Friday) all are also due to report.

The obvious things to watch are how companies are coping with inflation, whether they are seeing slowing economic activity, and whether this quarter will see “kitchen sink” efforts to make certain charges or losses or to just lower expectations given the overall market wariness.

Tech Earnings

Expectations have already been lowered for many big-name tech companies that report earnings this week, and investors’ questions will be more geared towards whether the worst is past.

Netflix (NASDAQ:NFLX), reporting Tuesday after market hours, exemplifies this challenge, as the streaming giant has seen its shares drop nearly 70% year to date, the worst performance in the S&P 500. Q1 earnings showed both a post-pandemic hangover and a management team not sure what was next so investors will watch for any sign of a clear direction.

Snap (NYSE:SNAP) reports Thursday after market hours and has been a canary in the coal mine for digital advertising, and so may have an outsized effect on overall markets again.

Tesla (NASDAQ:TSLA) reports on Wednesday and will be closely scrutinized after a rare quarter-over-quarter drop in deliveries.

ASML Holding’s (NASDAQ:ASML) report on Wednesday will add the latest key data point to whether the semiconductor sector is starting to slow.

Twitter (NYSE:TWTR) will report earnings Friday morning; while they won’t be hosting a conference call given the pending acquisition by Elon Musk, the report should not have any direct impact on the company’s litigation against Musk, it will be closely watched all the same.

ECB Meeting

The European Central Bank meets on Thursday in a meeting that is expected to see the bank raise rates for the first time in a decade. There’s no shortage of news surrounding the ECB’s decision, whether it be the drama in Italy around Prime Minister Mario Draghi’s attempted resignation or the Euro’s flirtation with parity with the dollar. And more news is due just ahead of the meeting, with Eurozone CPI numbers due out Tuesday. Beyond the interest rate decision and ECB President Christine Lagarde’s press conference, the meeting is expected to shed light on the bloc’s new tool to keep country-level bond yields from spiralling too high.

UK CPI, Employment, and Prime Minister Debate

A CPI report is also due out in the U.K. on Wednesday, with employment data coming out Tuesday. The Bank of England has been earlier to the recent rate hikes party, though proceeding at a steady 25 basis point pace, and strong employment and/or high CPI numbers might put pressure on the bank to accelerate that pace at its next meeting in three weeks.

Both these data releases come after television debates of the leading candidates to replace Boris Johnson as the head of the Conservative Party and the prime minister of the U.K. While Johnson’s resignation was not directly related to the economic climate, there’s no doubt tackling inflation will be a top task for the new PM.

Whither Oil?

With U.S. President Joe Biden visiting Saudi Arabia last week and meeting with Crown Prince Mohamed Bin Salman despite the human rights concerns stemming from the 2018 murder of journalist and dissident Jamal Khashoggi, the direction of oil has come back into the spotlight. Whether Biden got any immediate gains out of his politically risky visit remains to be seen. The price of Crude Oil WTI Futures has dropped nearly 20% in the past five weeks, coinciding with Biden’s increased jawboning over oil companies and oil producers’ role in inflation, though also more importantly coinciding with increased fears of a recession.

The price of oil poses a real catch-22 for the President, central banks, and the wider economy – a sustained drop in the price of oil and subsequently gasoline prices would take off a great deal of inflation pressure but also may signal that a recession is here, which brings its own economic and political challenges.

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