Top 5 Things to Watch in Markets in the Week Ahead

By Noreen Burke

Investing.com -- The Federal Reserve and the Bank of England are all but certain to deliver jumbo 75-basis-point rate hikes on Wednesday and Thursday, respectively, as the battle against sky-high inflation continues. But with investors now on the lookout for signs that aggressive monetary tightening could start to slow, Friday’s U.S. jobs report for October and Monday’s Eurozone inflation report will be in the spotlight. And with earnings season at the halfway mark the week ahead will show whether U.S. equities can continue to take disappointing corporate results in stride. Here’s what you need to know to start your week.

1. Fed rate hike

The Fed is widely expected to raise interest rates by an outsize 75 basis points for a fourth straight time at the conclusion of its two-day policy meeting on Wednesday.

Investors instead will be looking to Fed Chairman Jerome Powell for any hints that the future pace of hikes could slow after recent softer economic data.

Financial markets are currently pricing in a smaller 50-basis-point rate hike at the Fed’s December meeting and another 50 basis points over the first two meetings of next year.

But betting on a less hawkish Fed has been a risky strategy so far this year. Stocks have repeatedly rebounded from lows amid hopes for a so-called Fed pivot, only to be pressured lower again by persistently high inflation and aggressive monetary tightening.

2. U.S. jobs data

The tone of Wednesday’s Fed press conference and Friday's October U.S. nonfarm payrolls report will be key in helping investors set expectations ahead of the central bank’s December meeting.

Analysts are expecting the Labor Department to report that the U.S. economy added 200,000 jobs last month, compared with 263,000 in September, while annual growth in average hourly earnings is also expected to moderate.

Data on Friday showed that U.S. labor costs increased solidly in the third quarter, but private sector wage growth slowed considerably, indicating that inflation had either peaked or was close to doing so.

3. BoE rate hike

The BoE looks set to raise interest rates by 75 basis points on Thursday - its eighth straight rate increase in a row as it battles inflation currently running above 10% - even as the U.K. heads for a recession that could be exacerbated by spending cuts under new Prime Minister Rishi Sunak.

Expectations for a full percentage-point rate hike were trimmed back last week after new Chancellor of the Exchequer Jeremy Hunt reversed almost all former Prime Minister Liz Truss's planned tax cuts and shortened her energy cap program to six months from two years.

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But the delay of the first budget plan of the new government until Nov. 17 will make it harder for the BoE to spell out its economic forecasts.

After delays caused by recent financial market turmoil, the BoE is also due to start selling bonds from its stimulus stockpile on Tuesday.

4. Eurozone data

The Eurozone is to release its flash inflation estimate for October on Monday which is expected to come in at a record high of 10.2%.

Last Thursday the European Central Bank delivered its second 75-basis-point rate hike in a row and subsequent remarks by policymakers indicated that it would continue tightening in the coming months in order to prevent inflation from becoming entrenched, despite fears over a looming recession.

The European energy crisis precipitated by Russia’s war in Ukraine has exacerbated the economic effects of already high inflation resulting in a slowdown in consumer spending.

The euro area is also to release preliminary GDP figures for the third quarter on Monday, which are expected to show a small expansion, but most economists expect the bloc's economy to enter contraction territory in the fourth quarter.

5. Earnings

With earnings season passing the halfway mark the week ahead will be a test of whether equities can continue to weather disappointing earnings news.

263 of the companies in the S&P 500 have already reported and more than 150 S&P 500 companies are due to report quarterly results in the coming week, including Eli Lilly (NYSE:LLY), ConocoPhillips (NYSE:COP) and Qualcomm (NASDAQ:QCOM).

Earnings season has seen high-profile misses from some big tech names including Amazon (NASDAQ:AMZN), Microsoft (NASDAQ:MSFT), Google parent Alphabet (NASDAQ:GOOGL) and Facebook parent Meta Platforms (NASDAQ:META).

Wall Street closed sharply higher on Friday with the S&P and the Nasdaq posting their second straight weekly gain and the Dow notching up its fourth consecutive weekly gain boosted by hopes for a Fed pivot.

--Reuters contributed to this report