Top 5 things to watch in markets in the week ahead

(C) Reuters

Investing.com — Wednesday’s Federal Reserve decision is set to be the highlight of the week, with the central bank expected to announce another quarter point rate hike. A barrage of earnings are also on deck, including results from Apple. The U.S. jobs report and central bank meetings in the Eurozone and Australia round out the week.

Fed decision

The Fed is expected to raise interest rates by another 25 basis points on Wednesday against a background of still persistent inflation and growing concerns over the economic outlook.

It would be the tenth straight rate hike in a row, bringing the benchmark to between 5% and 5.25%, its highest level since 2007. While price pressures are cooling inflation is still well above the Fed’s annual target of 2%.

Fed officials and markets remain at odds over the future path of interest rates with the central bank expecting interest rates to remain around current levels through 2023 and investors betting on rate cuts before the year’s end.

Given renewed signs of stress in the banking sector in recent days, with problems at First Republic Bank (NYSE:FRC), Fed officials may signal a pause in June.

Fed policymakers have indicated that the tighter credit conditions could act like an additional rate hike, possibly reducing the number of hikes necessary to bring inflation back down to its target.

U.S. jobs report

The U.S. is to release the April employment report on Friday, which is expected to show the economy added 180,000 jobs. While still a solid number it would mark a third consecutive month of moderating jobs growth.

The unemployment rate is expected to tick up to 3.6% while average hourly earnings are expected to remain steady.

Data last week showed that first-quarter growth slowed more than expected, so the jobs report will be closely watched for indications of how well demand in the labor market is holding up.

The economic calendar also features March data on job openings, initial jobless claims (which are starting to edge higher) and ISM surveys of purchasing managers in the manufacturing and services sectors for April.

Earnings

Apple (NASDAQ:AAPL), the largest U.S. company by market value at $2.6 trillion is set to report earnings on Thursday, with analysts forecasting revenue for its fiscal second quarter to decline to $93 billion with earnings per share expected to come in at $1.43.

The report from Apple is a bellwether for global consumer demand and its results stand to ripple through markets given its importance to several industries.

Overall, earnings have come in better than feared for the first quarter. With just over half of the S&P 500 having reported, earnings are on pace to have declined 1.9% for the first quarter from the year-earlier period, according to Refinitiv. That is a smaller decline than the 5.1% drop expected at the start of April.

Some other big-name companies set to report in the coming week include Ford (NYSE:F), Starbucks (NASDAQ:SBUX), Advanced Micro Devices (NASDAQ:AMD), Kraft Heinz (NASDAQ:KHC), Marriott International (NASDAQ:MAR), Moderna (NASDAQ:MRNA), Pfizer (NYSE:PFE) and Uber Technologies (NYSE:UBER).

ECB rate hike

The European Central Bank is set to hike rates again on Thursday with both a 25-basis point and a 50-basis point hike on the table. Tuesday’s data on Eurozone inflation and bank lending will tip the scales.

Consumer price inflation figures for April are likely to confirm underlying price pressures – running above 5% – remain uncomfortably high. This would underline the argument in favor of a larger rate hike.

But if bank lending data shows credit conditions have tightened substantially, the case for a smaller rate hike would be bolstered.

RBA likely to remain on hold

The Reserve Bank of Australia is expected to keep interest rates on hold at its meeting on Tuesday after recent consumer price data added to evidence that inflation peaked at the end of last year.

The RBA paused a year-long rate hike cycle in April but had warned that any signs of sticky inflation could attract more rate hikes. The minutes of the bank’s April meeting showed a hike was hotly debated.

The bank has hiked interest rates by a cumulative 350 basis points over the past year, as it moved against a post-COVID surge in inflation.

–Reuters contributed to this report