Concerns over central bank rate hikes, COVID-19 lockdowns in China, and mixed earnings reports sent shudders across Wall Street as the S&P500 ended 3.3 per cent lower for the week and almost 9 per cent lower for the month of April.
The ASX200 outperformed again, closing just 0.5 per cent lower for the week at 7435, as bargain hunters snapped up beaten-up resource stocks after a week of panic selling.
Here is a review of the top five things to watch in markets this week.
1. Federal Reserve to raise interest rates
Fed Chair Powell has pre-signalled that at Thursday morning’s FOMC, the Federal Reserve will raise the Fed Funds rate by 50bp to a range of 0.75 to 1 per cent and announce the start of balance sheet reduction.
The FOMC will also signal that it is expected to take the Fed Funds rate to about 2.5 per cent by year end, despite threats to growth.
2. RBA to raise interest rates
Last week’s Australian Q1 inflation blowout has significantly increased the chances that the RBA will raise rates for the first time since 2010 at its board meeting on Tuesday afternoon.
To limit the fallout in the lead up to the federal election, the RBA will likely raise rates by 15 bps (a ‘mini’ hike taking the cash rate to 0.25 per cent, before lifting rates to 1.5 per cent by year end.
3. Bank of England to raise interest rates
The BOE is expected to increase the Bank Rate by 25bp to 1 per cent as it attempts to tame high inflation against the backdrop of a slowing growth outlook that the war in Ukraine has amplified.
4. Q1 2022 US earnings season continues
This earnings season has once again provided its fair share of prominent ‘misses’ from Netflix, Amazon, and Google.
However, according to FactSet, of the 55 per cent of companies in the S&P500 that have reported so far, 80 per cent of companies have beaten expectations compared to the five-year average of 77 per cent.
This week sees earnings reports from another 164 companies, including Moderna, Uber, BP, Pfizer, AMD and Lyft.
5. US jobs report
The market expects to see a 400,000 gain in payrolls and the unemployment rate to remain at 3.6 per cent.
The strong labour market and high inflation are expected to see the Fed follow up its 50bp rate hike this week with another 50bp rate hike in June.
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