Top 5 things to watch in the markets in the coming week

By Noreen Burke

Investing.com — Thursday’s U.S. inflation data could provide some insight into when the Federal Reserve might begin to ease the pace of rate hikes. The outcome of Tuesday’s U.S. midterm elections, where congressional oversight is at stake, will also be a focus. China to release trade and inflation data as Beijing’s zero COVID policy continues to wreak economic damage. Meanwhile, the UK is due to release GDP data on Friday which is expected to show the economy has entered a recession. Here’s what you need to know to start your week.

  1. US Inflation Data

The United States is due to release inflation data for October on Thursday, with market watchers on the lookout for indications that price pressures are easing after a series of outsized rate hikes by the Fed.

Fed Chairman Jerome Powell said last week that policymakers are likely to take higher-than-expected rates in their bid to rein in soaring inflation, so a warmer-than-expected reading would likely cement stocks. expectations that the Fed would continue its hawkish trajectory.

But a colder-than-expected reading could cause markets to focus more on the higher probability of a recession.

Economists expect the annual inflation rate to reach and the monthly inflation rate to increase by .

  1. US midterm elections

The United States is gearing up for Tuesday’s midterm elections, where control of Congress and President Joe Biden’s agenda for the remaining two years of his term are at stake.

Republicans are leading in the polls, and many analysts believe the likely outcome will be a divided government, with GOP control of the House of Representatives and possibly the Senate during the second half of Biden’s term.

Democrats’ electoral hopes have been hammered by voter concerns over high inflation, and Biden’s public approval rating has remained below 50% for more than a year, hitting 40% in a recent Reuters/Ipsos poll. .

  1. Shares

Wall Street rebounded on Friday to end a soft week, but the rally in troubled stocks will be tested in the coming days by the double whammy of inflation data and US intermediaries.

Despite Friday’s gains, dropping 1.39% for the week to snap a four-week winning streak, losing 3.34% for the week and dropping 5.65%, its biggest drop weekly as a percentage since January.

Inflation data has led to huge market moves this year as consistently high readings have forced investors to raise their expectations for the Fed

rate hikes

.

Analysts said a surprise Democrat victory could stoke concerns about increased fiscal spending and the outlook for inflation.

According to Reuters data, U.S. stocks have performed better during a period of divided government, with an annual average S&P500 returns of 14% in a divided Congress and 13% in a Republican-held Congress under a Democratic president, compared to 10% when the Democrats controlled both the presidency and Congress.

  1. China data

Chinese and Hong Kong stocks jumped sharply on Friday amid speculation that Beijing could soon ease its strict zero-COVID restrictions, but officials said on Saturday the country was sticking to its policy.

China is due to release data on , and in the coming week, which should point to continued weakness in the world’s second-largest economy as COVID dampens demand.

Beijing is also due to release data on foreign exchange reserves, which are running low as authorities seek to shore up the yuan which is on track for its worst year since 1994.

Falling for eight consecutive months, China’s foreign exchange reserves are a hair’s breadth from the psychological level of $3 trillion amid broad dollar strength since the Fed began raising rates in March.

  1. UK GDP

The UK is due to release preliminary third-quarter growth data on Friday, which is expected to show the economy contracted in the three months to September.

Last Thursday, the Bank of England aggressively sought to combat the risks of an inflation rate above 10% and warned of a long recession.

The BoE expects inflation to hit a 40-year high of around 11% in the current quarter, but Britain has already entered a recession that could potentially last two years – longer than in the financial crisis of 2008-09.

–Reuters contributed to this report

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