What do you know in the markets this week

After a rough month for stock investors in April, May begins with a set of major market events that could increase volatility in risk assets.

One of the focal points this week will be the Federal Reserve’s monetary policy meeting in May, which will take place on Tuesday and Wednesday. Market participants expect that at the conclusion of this meeting, central bank officials will choose to raise interest rates by 50 basis points, which would be the first increase of more than 25 basis points since 2000. Investors also expect the Federal Reserve to formally announce plans to start renewable assets outside The central bank balance sheet, the start of quantitative tightening.

As of Friday, Fed fund futures showed that traders were pricing in a greater than 99% probability that the Fed would raise interest rates by 50 basis points, bringing the target range for the fed funds rate between 0.75% and 1.00%.

The forecast came after weeks of statements from senior Fed officials, including Fed Chair Jerome Powell and Fed Vice Chair Lael Brainard, which indicated that the Fed was pushing the idea of ​​raising interest rates more aggressively in the near term.

“We’re really committed to using our tools to bring back the 2% inflation rate,” Powell said during a public appearance with the IMF earlier this month. “It’s appropriate in my view to move a little bit more quickly.” I also think that there is something in the idea of ​​forward loading… that points to the 50bp trend on the table. “

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

This is almost identical to February’s rate and is the fastest since 1983. Consumer prices rose last month by the most since December 1981 with an 8.5% annual increase.

“They’re behind the curve — they know they’re behind the curve,” said Jim Smegel, chief investment officer at SEI Investments, He told Yahoo Finance Live last week. “We are over 8% on inflation and [the Fed funds rate] in a quarter point. They will come at the age of fifty [basis points]. They will do 50 again. And they’ll start talking about the balance sheet.”

“From the Fed’s point of view, at this point they are ready to trade in a little bit of GDP and a little bit of unemployment to bring down the inflation rate,” Smigel added. “I think they feel like they are trapped in a little corner. Nothing is going on today that will derail them. They will come early and the guns are burning a bit.”

WASHINGTON, DC, USA – MARCH 21: Jerome Powell, Chairman of the US Federal Reserve, speaks during the National Association for Business Economics (NABE) Economic Policy Conference in Washington, DC, US on March 21, 2022. (Photo by Yasin Ozturk) / Anadolu Agency via Getty Images)

At the same time, Powell also indicated that he believes that the central bank will succeed in tightening monetary policy while maintaining economic expansion. However, some critics were more skeptical, especially after new data last week showed that the US economy contracted at an average rate of 1.4% annually at the beginning of this year.

“They’re between a rock and a hard place,” David Strzewski, CEO of the Sound Planning Group, told Yahoo Finance Live last week. “The two most important things they have to defend against now, inflation and then this balance between them, we want a low cost of lending…because there are a lot of people trying to get mortgages. We have a lot of businesses that are dependent on high debt businesses. And it was very easy to refinance it. “.

“The Fed has been late to the negotiating table trying to undo some of these changes and make some of these changes,” he added. “We were in such a strong economy. And that was the moment where we could possibly have done some of that tightening. So we were a little bit late.”

However, borrowing costs remain historically low, and consumers continue to show a general spending propensity. However, the key question remains whether this will eventually continue as the cost of doing business rises along with interest rates and as financial conditions tighten further.

Ethan Harris, global economist at Bank of America, wrote in a note on Friday: “We think recession risks are low for now but high for 2023. The main risk is that inflation will remain high next year, forcing the Fed to rise until it hurts.” . “Besides inflation, investors should monitor consumer spending, sentiment, labor supply, and the front end of the yield curve to assess recession risk.”

April jobs report

The Labor Department’s latest monthly jobs report will complement this week’s economic data table, and provide an updated snapshot of labor market strength so far this year.

The report is due out on Friday, so it won’t be one of the data points considered during the Fed’s deliberations earlier in the week. However, the data will likely play only a marginal role in informing Fed decisions even if it is available, given that the Fed has shifted its priorities to fighting inflation rather than maximizing employment in a labor market that is already showing strong signs of strength.

Economists unanimously look for a nonfarm payroll rise of 391,000 in April, slowing slightly from March’s jump of 431,000. Unemployment is expected to improve further to 3.5%, which is in line with the February 2020 level of the lowest unemployment rate in nearly 50 years.

Average hourly earnings – a closely watched indicator of whether rising wages are reinforcing the price-rising cycle – is expected to rise 5.5% from a year ago, moderate only slightly from the annual rate of 5.6% in March. However, these wage gains have not kept pace with inflation, given the recent 8.5% rise in consumer prices.

Economic calendar

  • Monday: S&P Global Manufacturing PMI US, Apr (59.7 expected, 59.7 in previous print); Construction spending, MoM, March (0.8% expected, 0.5% in February); ISM Manufacturing, April (expect 57.7, March 57.1); ISM prices paid, Apr (87.1 in March); New Orders ISM, April (53.8 in March); ISM Recruitment (56.3. in March)

  • Tuesday: Factory Orders, March (1.2% expected, -0.5% in February); JOLTS Job Opportunities, March (1.1266 million in February); Durable Goods Orders, March Final (0.8% in the previous edition); Durables excluding transportation, March final (1.1% in previous print); Non-defense capital goods orders, excluding aircraft, March final (1.0% in previous edition); Non-defense Capital Goods Shipments, Excluding Aircraft, March Final (0.2% in previous print)

  • Wednesday: MBA Mortgage Application, week ending April 29 (-8.3% over the previous week); ADP Employment Change, April (360,000 expected, March 455,000); March Trade Balance (forecast: $86.7 billion, $89.2 billion in February); S&P Global US Services PMIM, April Finalist (54.7 in previous edition); S&P Global US Composite PMI, April Final (55.1 in previous edition); Federal Open Market Committee monetary policy decision

  • Thursday: Challenger job cuts, year-over-year, April (-30.1% in March); Nonfarm Productivity, Preliminary Q1 (expect -2.3%, 6.6% in Q4); Unit labor costs, preliminary to Q1 (6.7% expected, 0.9% in Q4); Initial jobless claims, week ending April 30 (180,000 over the previous week); Continuing Claims, week ending April 23 (1.408 million over the previous week)

  • Friday: Change in Nonfarm Payrolls, April (expect 390,000, March 431,000); Unemployment Rate, April (3.6% expected, 3.6% in March); Average Hourly Earnings, MoM, Apr (expect 0.4%, 0.4% in March); Labor force participation rate, April (62.5% expected, 62.4% in March)

earnings calendar

Monday

Before market open: Moody’s Corp. (MCO), ON Semiconductor Corp. (ON)

After market close: 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 market open: Estee Lauder (EL), Pfizer (PFE), Biogen (BIIB), Paramount Global (PARA), Hilton Worldwide Holdings (HLT), Molson Coors Beverage (TAP), Marathon Petroleum ( MPC), and KKR Inc. (KKR) and S&P Global Inc. (SPGI)

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

Wednesday

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

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

Thursday

Before market open: 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 market close: 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 Games (CRSR), Lucid Group (LCID)

Friday

Before Market Opens: Under Armor (UAA), Cigna (CI), DraftKings (DKNG)

After market close: There are no notable reports scheduled for release

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

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