By Noreen Burke
Investing.com -- U.S. earnings and retail sales numbers will be the main highlights in a holiday-shortened week. The Bank of Japan’s latest meeting will be in focus after it wrong-footed markets with a policy tweak in December. A slew of economic data from China will likely be downbeat and the World Economic Forum is due to hold its winter meeting in Davos. Here’s what you need to know to start your week.
- U.S. retail sales
U.S. retail sales posted their largest decline in 11 months in November and a similar drop in December would add to recent indications that the Federal Reserve’s aggressive rate hikes are cooling the economy.
Economists are forecasting a drop of 0.8% in figures due to be released on Wednesday, after a 0.6% decrease in November.
The economic calendar also features data on producer price inflation, existing home sales and initial jobless claims along with regional reports on manufacturing output.
Data late last week showing that U.S. consumer prices fell for the first time in over two-and-a-half years in December added to hopes that inflation is on a sustained downward trend that could give the Fed room to ease back on rate hikes.
Money market participants now see a 91.6% chance the Fed will hike rates by 25 basis points at its next policy meeting on Jan. 31 - Feb. 1.
- Earnings
Investors are closely watching earnings results to see if U.S. companies can beat estimates amid concerns that higher costs are squeezing profit margins.
Goldman Sachs (NYSE:GS) and Morgan Stanley (NYSE:MS) are both due to report earnings ahead of the open on Tuesday, followed by Procter & Gamble (NYSE:PG) ahead of the open and Netflix (NASDAQ:NFLX) after the close on Thursday.
Year-over-year earnings from S&P 500 companies are expected to have declined 2.2% for the quarter, according to Refinitiv data.
That would be the first U.S. quarterly earnings decline since the third quarter of 2020, when companies were still grappling with the start of the coronavirus pandemic.
The S&P 500 is up about 3.8% so far in 2023 after falling more than 19% last year, its biggest annual decline since 2008.
The U.S. stock market will be closed Monday for the Martin Luther King Jr. Day holiday.
- Bank of Japan
Investors will be keenly awaiting the conclusion of the BOJ’s two-day policy meeting on Wednesday amid speculation that it could make further adjustments to its yield curve control policy, the first stage of phasing out its massive stimulus.
The BOJ stunned markets last month by widening the band around its 10-year bond yield target, a move that investors saw as a prelude to a future rate hike.
Signs of broadening inflationary pressures have bolstered expectations that the BOJ will eventually normalize monetary policy.
Core consumer prices in Tokyo, a leading indicator of nationwide trends, rose at the fastest pace in four decades in December, exceeding the central bank's 2% target for a seventh straight month.
National inflation data, due out on Friday, is also expected to show an increase.
- Chinese data deluge
China is to release data on fourth quarter and full-year GDP on Tuesday, along with December data on retail sales, investment and industrial output which are expected to be ugly - economists expect retail sales to have dropped 7.8% for a fourth straight monthly decline and for annual growth to increase by only 1.8%.
But amid China’s rapid reopening investor focus is turning to prospects for a recovery in the world’s second-largest economy.
A sharp rise in travel ahead of the Lunar New Year holidays set to begin on Jan. 21 has fueled worry that it will bring a surge in COVID cases.
On Saturday Chinese authorities said nearly 60,000 people with COVID have died in hospitals since it abruptly abandoned its zero-COVID policy last month following widespread protests.
- Davos
The World Economic Forum is due to hold its first winter meeting in the Swiss ski resort of Davos since before the pandemic this week, with world leaders, central bank policymakers and top corporate leaders all in attendance.
On the agenda – the cost-of-living crisis, the threat of natural disasters and extreme weather events, geo-economic confrontation and failure to mitigate climate change - the top risks over the next two years according to a survey of WEF members.
Also looming is the first anniversary of Russia's war in Ukraine, which has rocked a global economy still reeling from the fallout of the COVID pandemic.
European Central Bank President Christine Lagarde, German Chancellor Olaf Scholz, NATO General Secretary Jens Stoltenberg, and Chinese Vice-Premier Liu He are all expected to attend.
--Reuters contributed to this report