Investing.com -- U.S. inflation data will be the main focus this week as investors await further clarity on the future path of Federal Reserve interest rates. Big U.S. banks kick off earnings session, crypto looks set to remain volatile and the U.K. is to release GDP data. Here’s what you need to know to start your week.
Inflation data
The U.S. is to publish the latest consumer price index figures on Thursday, followed a day later by the report on producer prices, with investors watching closely for clues on the possible trajectory of interest rates.
A gradual cooldown in inflation has fueled bets that the Fed could begin to cut interest rates as soon as March.
Hopes for a swift pace of easing had triggered a blistering rally in the final weeks of 2023, which took the S&P 500 to within 1% of its all-time high. But investors have turned cautious since the start of 2024, as they awaited further clarity on when rate cuts will begin, and how quickly they will happen.
Friday’s employment report for December dampened hopes for rapid rate cuts, with the U.S. economy adding more jobs than expected, but a separate report showing service sector activity slowing last month encouraged expectations for swift easing.
Investors will also get to hear from several Fed officials during the week, including New York Fed President John Williams and Atlanta Fed head Raphael Bostic.
Bank earnings
Major U.S. banks kick off earnings season with JPMorgan Chase (NYSE:JPM), Bank of America (NYSE:BAC) and Citigroup (NYSE:C) due to report fourth quarter and full-year results on Friday.
Top lenders brought in more income from interest payments in 2023 as the Fed raised rates, helping banks to offset a protracted slump in dealmaking revenue in Wall Street divisions.
Consumers are also in focus with household finances having remained largely healthy since the pandemic, but some customers, particularly those on lower incomes, are starting to fall behind on payments in greater numbers.
Earnings season will be a test of elevated expectations for corporate profits. Analysts expect S&P 500 earnings to rise by 11% in 2024 after increasing just 3% in 2023, according to LSEG data cited by Reuters.
Stormy seas
Market watchers have been looking to oil prices for signs that the Israel-Hamas conflict will push global inflation higher, but with expectations of heavy supply, oil does not tell the whole story.
As transport groups re-route vessels away from the Red Sea, retailers face the biggest shipping upheaval since COVID-19 stymied the freight industry in 2020.
The result could be Western retailers waiting longer for goods to arrive from China, with shortages pushing up prices, trade analysts say. The British Retail Consortium has said rising costs could reverse a trend of moderating grocery price inflation.
Markets, more focused on relatively moderate oil prices, have so far shown limited concern about Red Sea shipping. But investors would be wise to monitor freight costs for signs that the battle against inflation is not over.
Bitcoin ETF optimism
Bitcoin kicked off the new year with strong gains buoyed by hopes for a possible approval by U.S. regulators of exchange-traded spot bitcoin funds.
The largest crypto token by market cap topped $45,000 for the first time since April 2022 on bets that such applications will get the nod from the Securities and Exchange Commission in the near future.
Market players say the SEC's decision may be imminent and could usher in a new wave of capital to crypto. Such hopes helped propel bitcoin in 2023 to yearly gains of more than 155%.
But Bitcoin has already trimmed back gains amid some lingering doubts over how much demand will exist for any bitcoin ETF and whether approval is already priced in.
U.K. GDP
The U.K. is to release GDP data for November on Friday with economists expecting a modest rebound after October’s drop, which was due to an unusually large decline in manufacturing activity.
Data on Friday pointing to a rebound in Britian’s service sector activity in December indicated that the economy may narrowly avoid a recession as businesses and households weather the storm of high inflation and borrowing costs at a 15-year peak.
The Bank of England is facing calls from business leaders, worried about the economy, to cut interest rates. Investors are pricing in a first reduction in interest rates in May.
BoE Governor Andrew Bailey, along with several other policymakers, is due to testify to parliament on financial stability on Wednesday.
--Reuters contributed to this report