What to know in markets this week

After a brutal month for equity investors in April, May begins with a host of major market events that could cause greater volatility across risk assets.

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One of the focus points this week will be the Federal Reserve’s May monetary policy meeting, which takes place Tuesday and Wednesday. Market participants expect that at the end of this meeting, central bank officials will choose to raise interest rates by 50 basis points, representing the first increase of more than 25 basis points since 2000. Investors also expect for the Fed to announce plans to formally begin rolling assets. off the central bank balance sheet, beginning the process of quantitative easing.

As of Friday, the future of Fed funds showed that traders were pricing in more than 99% probability that the Fed would increase rates by 50 basis points, bringing the target range for the federal funds rate to between 0.75 % and 1.00%.

These expectations came after weeks of comments from key Fed officials including Fed Chairman Jerome Powell and Fed Vice Chairman Lael Brainard, who suggested the Fed is warming up to the idea of ​​more aggressive rate hikes in the near term.

“We are really committed to using our equipment to get 2% inflation back,” Powell said during a public appearance with the International Monetary Fund earlier this month. “It is appropriate in my view to move a little faster. And I also think there’s something in the idea of ​​front end loading … which points in the direction of 50 basis points to be on the table. ”

Such a move would accelerate the Fed’s path toward lowering inflation, which has lasted longer and at a higher rate than many monetary policymakers initially envisaged. Last week, government data showed that core personal consumption (PCE) spending – the Fed’s preferred inflation gauge – rose at an annual rate of 5.2% in March.

This was roughly the February rate for the fastest since 1983. And last month’s consumer prices rose most since December 1981 with an annual surge of 8.5%.

“They’re behind the curve – they know they’re behind the curve,” Jim Smigiel, SEI Investments chief investment officer, told Yahoo Finance Live last week. “We are plus-8% on inflation and [the Fed funds rate] which is at a quarter point. They’re going to come in at 50 [basis points]. They’re going to do 50 again. And they’re going to start talking down the balance sheet. “

“From the Fed’s point of view, they are currently willing to trade some GDP and a little unemployment to get the inflation rate down,” added Smigiel. “I think they feel like they are out of a corner. Nothing happening today is going to get them off track. They’re going to be coming in early and firing a little. “

WASHINGTON DC, USA - MARCH 21: Jerome Powell, Chairman of the US Federal Reserve, speaks during the National Business Economics Association (NABE) economic policy conference in Washington, DC, United States on March 21, 2022. (Photo by Yasin Ozturk / Respiratory Agency via Getty Images)

WASHINGTON DC, USA – MARCH 21: Jerome Powell, Chairman of the US Federal Reserve, speaks during the National Business Economics Association (NABE) economic policy conference in Washington, DC, United States on March 21, 2022. (Photo by Yasin Ozturk / Respiratory Agency via Getty Images)

At the same time, Powell also suggested that he believes the central bank will succeed in tightening monetary policy while sustaining the economic expansion. Some pundits, however, have been more skeptical, especially after new data last week showed that the US economy had shrunk at a 1.4% annual rate at the beginning of this year.

“They are between a rock and a hard place,” David Stryzewski, CEO of the Sound Planning Group, told Yahoo Finance Live last week. “The two big things they have to defend against right now, inflation and then this balance between, we want a low cost for borrowing … because there are a lot of people out there trying to getting mortgages. We have a lot of our economy based on businesses with high debt. And it’s been so easy to refinance. “

“The Fed is late to the table on trying to withdraw some of this and make some of these changes,” he added. “We were in such a strong economy. And that was really our moment where we could have done some of this tightening. So we’re a little late.”

However, borrowing costs remain low on a historical basis, and consumers have still shown a general tendency to spend. However, the key question remains as to whether that is going to continue in the long run as the cost of running a business rises alongside interest rates and as financial conditions tighten further.

“We think the risks of a recession are low for the time being but high for 2023. The key risk is that inflation will remain high next year, forcing the Fed to hike until it hurts, ”Ethan Harris, Bank of America global economist, wrote in a note on Friday. “Apart from inflation, investors should watch consumer spending, sentiment, labor supply and the front of the product curve to assess the risks of a recession.”

April jobs report

The latest Department of Labor monthly jobs report will round out the economic data docket this week, offering an updated snapshot of labor market strength so far this year.

The report is expected to be released on Friday, and will therefore not be one of the data points considered during the Fed’s discussions earlier in the week. However, the data would likely have played only a marginal role in informing the Fed’s decisions even if available, given that the Fed shifted its priorities to fighting inflation rather than maximizing employment in a labor market that has already shown abundant signs of strength.

Consensus economists are looking for a non-farm payroll to raise 391,000 in April, slowing March’s jump slightly by 431,000. Unemployment is expected to improve further to 3.5%, which would equate to the February 2020 level for the lowest unemployment rate in about 50 years.

Average hourly earnings – a closely watched indicator of whether rising wages are reinforcing a higher price cycle – are expected to rise 5.5% over last year, slightly moderating from March’s 5.6% annual rate. Even so, these wage gains have not kept pace with inflation, given that consumer prices have most recently risen 8.5%.

Business calendar

  • Monday: S&P Global US Manufacturing PMI, April (expected 59.7, 59.7 in previous print); Construction expenditure, month on month, March (0.8%, 0.5% expected in February); ISM Manufacturing, April (expected 57.7, 57.1 in March); ISM Paid Prices, April (87.1 in March); ISM New Orders, April (53.8 in March); ISM Employment (56.3. In March)

  • Tuesday: Factory Orders, March (expected 1.2%, -0.5% in February); JOLTS Job Openings, March (1.1266 million in February); Durable Goods Orders, March final (0.8% in previous print); Durable Goods other than transport, March final (1.1% in previous print); Vulnerable Capital Goods Orders, excluding aviation, March final (1.0% in previous print); Vulnerable Capital Goods, excluding aviation, March final (0.2% in previous print)

  • Wednesday: MBA Mortgage Application, week ending April 29 (-8.3% in week prior); ADP Employment change, April (360,000, 455,000 expected in March); Trade balance, March (- expected $ 86.7 billion, – $ 89.2 billion in February); S&P Global US Services PMIM, April final (54.7 previously printed); S&P Global US Composite PMI, April final (55.1 previously printed); FOMC monetary policy decision

  • Thursday: Challenger Job Cuts, year-on-year, April (-30.1% in March); Non-farm Productivity, 1Q preliminary (-2.3% expected, 6.6% in 4Q); Unit Labor Costs, 1Q preliminary (6.7% expected, 0.9% expected 4Q); Initial unemployed claims, week ending April 30 (180,000 previous week); Ongoing claims, week ending April 23 (1.408 million in the previous week)

  • Friday: Non-farm wage change, April (expected 390,000, 431,000 in March); Unemployment rate, April (3.6%, 3.6% expected in March); Average hourly, month-over-month, April earnings (expected 0.4%, 0.4% in March); Workforce Participation Rate, April (expected 62.5%, 62.4% in March)

Earnings calendar

Monday

Before the market opens: Moody’s Corp. (MCO), ON Semiconductor Corp. (WE)

After market closure: Clorox (CLX), Devon Energy (DVN), Diamondback Energy (FANG), MGM Resorts International (MGM), Avis Budget Group (CAR), Expedia (EXPE), Chegg (CHGG), ZoomInfo Technologies (ZI)

Tuesday

Before the market opens: The Estee Lauder Co. (EL), Pfizer (PFE), Biogen (BIIB), Paramount Global (PARA), Hilton Worldwide Holdings (HLT), Molson Coors Beverage (TAP), Marathon Petroleum (MPC), KKR Inc. (KKR), S&P Global Inc. (SPGI)

After the market closes: Caesar’s Entertainment (CZR), Airbnb (ABNB), Starbucks (SBUX), Advanced Micro Devices (AMD), Paycom Software (PAYC), Skyworks Solutions (SWKS), Revolve Group (RVLV), Match Group (MTCH), Lyft (LYFT)

Wednesday

Before the market opens: Wingstop (WING), AmerisourceBergen (ABC), CVS Health (CVS), Marriott International (MAR), Moderna (MRNA), Yum! Brands (YUM), Vulcan Materials Co. (VMC), Sinclair Broadcast Group (SBGI), Spirit Airlines (SAVE)

After the market closes: Booking Holdings (BKNG), GoDaddy (GDDY), Uber (UBER), Marathon Oil (MRO), Twilio (TWLO), Etsy (ETSY), TripAdvisor (TRIP)

Thursday

Before the market opens: Zoetis (ZTS), ConacoPhillips (COP), Apollo Global Management (APO), Nikola (NKLA), Wayfair (W), Penn National Gaming (PENN), Royal Caribbean Cruises (RCL), SeaWorld Entertainment (SEAS), Datadog (DDOG), Crocs (CROX), Dominion Energy (D), Kellogg’s (K), Shopify (SHOP)

After the market closes: Block Inc. (SQ), Virgin Galactic Holdings (SPCE), DoorDash (DASH), Sweetgreen (SG), Opendoor Technologies (OPEN), Zillow Group (ZG), Luminar Technologies (LAZR), FuboTV (FUBO), Live Nation Entertainment (LYV) , Corsair Gaming (CRSR), Lucid Group (LCID)

Friday

Before the market opens: Under Armor (UAA), Cigna (CI), DraftKings (DKNG)

After closing the market: No notable reports scheduled for release

Emily McCormick is a reporter for Yahoo Finance. Follow her on Twitter: @emily_mcck

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