Top 5 things to watch in markets in the week ahead

(C) Reuters

By Noreen Burke

Investing.com — The release of Friday’s U.S. jobs report for February will shed more light on the strength of the labor market and investors will be watching Congressional testimony from Federal Reserve Chairman Jerome Powell for fresh insights on the future path of interest rates. Equity markets look set to remain volatile, central banks in Japan, Canada and Australia are to meet and data out of the U.K. will show how the struggling economy held up at the start of the year. Here’s what you need to know to start your week.

Nonfarm payrolls

Friday’s employment report for February will be the last before the Fed’s upcoming meeting on March 21-22 and takes on extra significance after January’s blowout report prompted investors to reevaluate expectations for the future path of interest rates.

Expectations are for the economy to have added 200,000 jobs last month, moderating from January’s blistering jobs growth of 517,000, while the unemployment rate is expected to hold steady at a more than five-decade low of 3.4%.

Another stronger-than-expected report could stoke fears of more hawkish Fed action – strong demand in the labor market bolsters wage growth, which contributes to higher inflation – keeping pressure on the Fed to push rates higher.

Investors are currently expecting another 25-basis point hike from the Fed this month but market pricing suggests a slightly higher chance for a bigger increase than had previously been the case.

Powell testimony

Before Friday’s jobs report Powell will be appearing before Congress to present the central bank’s semi-annual monetary policy report. He will be testifying before the Senate on Tuesday and the House of Representatives on Wednesday.

His comments will be closely followed for hints on whether a larger rate hike is under consideration this month after recent data pointing to still persistent inflation. Powell has said the January jobs report showed why the battle against inflation will “take quite a bit of time”.

The Fed slowed the pace of rate hikes to 25 basis points at its last meeting on Feb. 1, after a 50-basis point increase in December that came in the wake of four consecutive 75 basis-point increases.

Stock market volatility

Wall Street rallied on Friday at the end of a volatile week with the S&P 500 snapping a three-week losing streak and the Dow Jones Industrial Average posting its first weekly advance since late January.

After rebounding sharply in January, bonds and equities retreated in February as investors fretted that the Fed will push interest rates higher than previously expected and keep them elevated for longer to thwart inflation.

More market volatility could well be in store ahead of the Fed’s March meeting.

Meanwhile, fourth-quarter earnings season is on the final stretch, with all but seven of the companies in the S&P 500 having reported. Results for the quarter have beaten consensus estimates 68% of the time, according to Refinitiv data.

Central bank decisions

Central banks in Japan, Australia and Canada are all to hold monetary policy meetings this week.

On Friday, Bank of Japan Governor Haruhiko Kuroda chairs his last meeting after a decade at the helm overseeing super-easy monetary policy. No changes are expected before his successor Kazuo Ueda takes the reins on April 8th.

The Reserve Bank of Australia meets Tuesday and while officials had hinted at the prospect of further tightening at their meeting last month, investors are now expecting rates to remain on hold after recent data showing the economy grew at the weakest pace in a year in the fourth quarter and January figures indicating inflation may have peaked.

The Bank of Canada is also expected to hold rates steady when it meets on Wednesday, its first meeting since policymakers announced a conditional pause in January to allow the economy time to adjust to higher borrowing costs.

U.K. GDP

The U.K. is to publish GDP data on Friday showing how the economy fared in January after narrowly avoiding falling into a recession in the final three months of 2022. Economists are expecting gross domestic product to have expanded by just 0.1% in January from the prior month.

Britain’s economy is showing slightly more momentum than expected and pay growth is proving a bit faster than the central bank forecast last month, Bank of England Chief Economist Huw Pill said Thursday.

That said, Britain is the only G7 economy that is still smaller than before the coronavirus pandemic. The International Monetary Fund believes it will be the only G7 economy to shrink this year.

The BOE might now have to keep raising rates, as consumers appear to be holding up in the face of double-digit inflation.

–Reuters contributed to this report