November 24, 2022
  • November 24, 2022

Top 5 things to watch in the markets in the coming week

By on October 16, 2022 0

By Noreen Burke — The U.S. earnings season is kicking off amid fears that the Federal Reserve’s aggressive rate hike campaign could tip the economy into a recession. Investors will get an update on the US housing market where rising borrowing costs have already caused demand to cool. Appearances by several Fed officials are also on the agenda. In the UK, Jeremy Hunt will spend his first full week as Chancellor after Prime Minister Liz Truss was forced to fire her predecessor. Elsewhere, third-quarter economic data out of China is expected to underscore the challenges facing the world’s second-largest economy, while in Japan the yen is once again under scrutiny. Here’s what you need to know to start your week.

  1. Earnings

The third quarter earnings season begins with companies reporting results in a challenging environment due to the strengthening dollar and continued high inflation.

Reuters reported that overall corporate profits are expected to have risen 4.1% from the year-ago period, which would be the slowest growth since the fourth quarter of 2020.

But the focus may be more on how leaders project the future; According to Refinitiv IBES, consensus analysts are expecting earnings to rise nearly 8% next year, but many investors doubt that forecast as recession risks loom.

A sell-off in the markets has pushed down stock valuations, but a downgrade in earnings outlook could hurt equities’ appeal. Companies due to report results in the coming week include Tesla (NASDAQ:), Netflix (NASDAQ:) and Johnson & Johnson (NYSE:).

  1. United States housing data

In the wake of warmer than expected US inflation data last week, the focus will be on the housing market with reports due on , and .

House prices fell for the first time in more than a decade in July as rising interest rates hit housing demand, while mortgage applications also fell.

The economic calendar also includes reports on , the Philadelphia Fed Manufacturing Index, the Manufacturing Index and .

Regional Fed chairs Neel, Charles and James are also due to make appearances that will be closely watched.

On Saturday, Bullard said last week’s CPI figures showed inflation had turned “pernicious” and left the door open for 75 basis point rate hikes at upcoming Fed meetings in November. and December, but added that it was too early to make that call.

  1. UK tries to restore calm

Beaten UK government bonds will resume trading on Monday without support from the Bank of England‘s emergency bond-buying program, which ended on Friday.

Britain’s new Chancellor Jeremy Hunt has said he will fix the country’s public finances after the initial economic plan proposed by Liz Truss and former Chancellor Kwasi Kwarteng rattled financial markets.

Reports that the government is preparing to do an about-face on planned tax cuts have helped ease fears over public finances, but this will need to be translated into concrete plans to avoid another bond sale.

Investors will also be looking at Wednesday’s UK data for September, which is expected to hit double digits amid cost-of-living compression, while Friday’s numbers are expected to point to weaker consumer spending.

  1. Chinese data

China is due to release third-quarter GDP data on Tuesday and although growth is expected to rebound from the previous quarter, the economy is still on track to post its slowest annual growth rate in nearly 50 years.

The annual growth rate is expected to accelerate in the three months to September, after 0.4% in the second quarter.

Strict COVID-19 related restrictions as well as supply chain disruptions caused by the war in Ukraine and slowing global growth due to sharply rising borrowing costs to curb inflation weighed on the world’s second largest economy.

Analysts expect the Chinese economy to grow by 3.2% in 2022, well below the official target of around 5.5%.

Investors will be watching the week-long Communist Party Congress, which kicked off on Sunday, for any guidance on economic policy.

  1. Yen intervention?

Forex traders will be watching the situation closely amid speculation that the Bank of Japan may take further steps to shore up the currency after intervening in markets last month for the first time since 1998.

BoJ Deputy Governor Masazumi Wakatabe said on Saturday that the yen’s recent swings were “clearly too rapid and too one-sided,” underscoring concerns about the potential economic fallout from the currency’s collapse to lows of 32 years against the dollar.

Japan intervened in the foreign exchange market in September to stem sharp falls in the yen, mainly due to the policy divergence between the Fed’s aggressive rate hikes and the BoJ’s ultra-accommodative monetary policy aimed at achieving its objective. 2% inflation.

Japan is an exception among global central banks, many of which are raising interest rates to fight runaway inflation as it focuses on supporting a fragile economic recovery.

–Reuters contributed to this report