To start your trading week, let us have a peek at what the global market sentiment will be like this week through our Week In Review.
The gloomy backdrop suggests more sales. However, if Q2 earnings beat projections, the selloff could be halted. With U.S. stocks on the threshold of a bear market, investors will look to Wednesday’s Federal Reserve meeting minutes for more insights on the central bank’s policy response to soaring inflation.
Here is what you should know for this week.
Week In Review – Federal Reserve Minutes
Investors hope Wednesday’s Fed minutes will reveal if the U.S. central bank can curb the most aggressive inflation in four decades without triggering a recession.
Fed Chair Jerome Powell is sure that the central bank can help the economy have a “soft landing,” but Wall Street isn’t so sure, especially since there are more and more signs of a recession.
Goldman Sachs economists say that there is a 35% chance that the U.S. economy will go into a recession in the next two years. Wells Fargo economists predict that the U.S. economy will go into a mild recession at the end of 2022 or the beginning of 2023.
Since March, the Fed has raised rates by 75 basis points, and markets expect 50 basis point hikes in June and July.
Powell has vowed to raise rates as high as needed to tame inflation. The minutes will show what policymakers think about inflation and whether or not they think the economy can handle tighter monetary policy.
While we believe that these minutes will put to bed the prospect of a 75bp rate hike at a single meeting, we do not think that they will shift expectations for rate increases in the next two months.
Instead, the market will be looking for reasons why the Fed is taking a softer path when it comes to reducing the size of its balance sheet.
Week In Review – End Of Bear Market?
The end of the bear market seems elusive as U.S. stocks are on the threshold of a bear market – considered as a drop of at least 20% from a closing high.
The S&P 500 closed 19% lower on Friday than its record closing high on January 3, while the Nasdaq is down more than a quarter from its peak in November 2021.
Concerns about soaring prices, a hawkish Fed, and the outlook for economic growth have weighed on the markets. The war in Ukraine has contributed to the decline by contributing to increases in oil and other commodity prices.
The CBOE Volatility Index, widely known as Wall Street’s fear gauge, has been one of the gauges used by investors to determine when the markets will begin to rise. Even though the indicator is higher than its long-term average, it is still lower than it was during other big market drops.
Week In Review – Flash PMIs For May
On Tuesday, preliminary May S&P Global PMI estimates for Europe, the United Kingdom, and the United States will be released.
While Eurozone PMI data surprised to the upside in April, as services were boosted by the reopening of businesses following the Omicron wave, this month’s data will shed more light on how long consumers will continue to spend on services despite price increases.
Meanwhile, Germany’s Ifo business climate index for May, due out on Monday, is expected to show a decline.
U.K. PMI data is expected to point to a reduction in demand in the service sector this month. Bank of England Governor Andrew Bailey is due to speak on Monday.
Thus, PMI data is becoming obsolete when it comes to predicting what will happen to global growth. Will surging inflation finally weigh on these indices this month?
Keep an eye on the market prices and while you wait for your trade breakout, take advantage of the Juno Markets Economic Calendar to keep yourself updated with the market’s most important economic news events. https://www.junomarkets.com/en/resources/economic-calendar/
The Week Ahead
All times listed are EDT.
Monday, May 23
04:00: Germany – Ifo Business Climate MAY
Tuesday, May 24
03:30: Germany – S&P Global Manufacturing PMI Flash MAY
04:30: Great Britain – S&P Global/CIPS Manufacturing PMI Flash MAY
04:30: Great Britain – S&P Global/CIPS UK Services PMI Flash MAY
10:00: US – New Home Sales APR
Wednesday, May 25
02:00: Germany – GfK Consumer Confidence JUN
08:30: US – Durable Goods Orders MoM APR
14:00: US – FOMC Minutes
Thursday, May 26
08:30: US – GDP Growth Rate QoQ 2nd Est Q1
Friday, May 27
08:30: US – Personal Income MoM APR
08:30: US – Personal Spending MoM APR