The spotlight this week will be on the U.S. inflation data as investors eagerly anticipate more insights into the Federal Reserve’s plans for interest rates. Central U.S. banks commence earnings season, the cryptocurrency appears poised to maintain its volatility, and the United Kingdom is scheduled to release GDP data. Here’s the essential information to kickstart your week.
The Data on Inflation
The latest consumer price index figures will be released by the U.S. on Thursday, followed by the report on producer prices a day later. Investors will be closely monitoring these reports for any indications of the future direction of interest rates.
Speculation has been growing that the Federal Reserve may start reducing interest rates in March due to a gradual decrease in inflation.
Anticipation of a rapid rate of relaxation had sparked an impressive surge in the last weeks of 2023, propelling the S&P 500 to nearly reach its record high. However, investors have become more hesitant since the beginning of 2024, eagerly anticipating more information on the timing and speed of potential interest rate reductions.
The employment report for December on Friday dashed hopes for immediate rate cuts as the U.S. economy surpassed expectations by adding more jobs. However, a separate report indicating a slowdown in service sector activity last month has bolstered expectations for prompt easing.
Throughout the week, investors will have the opportunity to listen to various Federal Reserve officials, such as John Williams, President of the New York Fed, and Raphael Bostic, Head of the Atlanta Fed.
Observers in the market have been closely monitoring oil prices to gauge the impact of the Israel-Hamas conflict on global inflation. However, it is essential to note that oil alone does not provide a complete picture, as other factors, such as anticipated high supply, also play a significant role.
With transport companies redirecting ships from the Red Sea, retailers are now confronted with a significant disruption in shipping, comparable to the challenges faced during the COVID-19 pandemic that significantly impacted the freight sector last year.
According to trade analysts, Western retailers may experience delays in receiving goods from China, leading to potential shortages and subsequent price increases. The British Retail Consortium has expressed concern that increasing costs may undo the recent trend of slowing down the rise in grocery prices.
Markets, with a greater emphasis on reasonably stable oil prices, have thus far demonstrated minimal worry regarding shipping in the Red Sea. However, investors should keep a close eye on freight expenses to ensure that the fight against inflation is still ongoing.
Positive Sentiment Surrounding Bitcoin ETF
Bitcoin started the new year on a positive note, fueled by optimism surrounding the potential approval of exchange-traded spot Bitcoin funds by U.S. regulators.
The most significant digital currency by market capitalization surged past $45,000 for the first time since April 2022, fueled by optimism that these types of platforms will receive approval from the Securities and Exchange Commission soon.
Industry insiders suggest that the SEC’s ruling is on the horizon and has the potential to bring a fresh influx of funds into the cryptocurrency market. Such aspirations fueled the surge of Bitcoin in 2023, resulting in annual profits exceeding 155%.
However, Bitcoin has already reduced its gains due to some remaining uncertainties regarding the level of demand for a potential Bitcoin ETF and whether its approval has already been factored into the market.
Profits Made by Banks
Leading American banks are set to commence the earnings season as JPMorgan Chase (NYSE:JPM), Bank of America (NYSE:BAC), and Citigroup (NYSE:C) are scheduled to disclose their fourth quarter and full-year financial results on Friday.
Leading financial institutions generated higher earnings from interest payments in 2023 due to the Federal Reserve’s rate hikes, which aided banks in compensating for a prolonged decline in revenue from dealmaking in their Wall Street divisions.
Consumers are also a key concern, as household finances have generally stayed in good shape since the pandemic. However, there is a growing number of customers, especially those with lower incomes, who need help with making payments on time.
The upcoming earnings season will serve as a crucial examination of the heightened anticipations surrounding corporate profits. According to data from LSEG cited by Reuters, analysts are predicting a significant increase in S&P 500 earnings for 2024, with a projected rise of 11%. This comes after a more modest increase of 3% in 2023.
United Kingdom’s Gross Domestic Product
On Friday, the U.K. will unveil the GDP data for November, and economists are anticipating a slight recovery following the decline in October. The drop in October was primarily attributed to a significant decrease in manufacturing activity, which was an unusual occurrence.
Recent data suggests that there may be a positive turnaround in Britain’s service sector activity in December. This is a potential sign that the economy could narrowly escape a recession despite the challenges posed by high inflation and borrowing costs reaching a 15-year high for businesses and households.
Business leaders are urging the Bank of England to lower interest rates due to concerns about the economy. Investors are factoring in an initial decrease in interest rates in May.
On Wednesday, BoE Governor Andrew Bailey and a number of other policymakers are scheduled to appear before parliament to discuss financial stability.