Will the Fed signal a rate hike in March?

After another month of fiery inflation data, the Federal Reserve is expected to discuss the various tools in its arsenal to counter price pressures and set the stage for a rate hike in March at its two-day policy meeting next week.

Investors and analysts have been expecting more hawkish action from the central bank since the December 2021 meeting minutes were released in early January. those minutes Show officials are weighing the prospect of a “faster or faster” rate hike than they had initially expected.

Since then, the futures market has fully priced in a 25 basis point rise at the March meeting, with three more rallies expected in 2022.

“Following the hawkish turn at the Fed’s December meeting, we expect Chairman[Jay]Powell to use the January press conference to cement expectations for a rate hike in March,” wrote Luigi Speranza, chief global economist at BNP Paribas.[Jay}PowelltousetheJanuarypressconferencetoconsolidateexpectationsforaMarchratehike”wroteLuigiSperanzachiefglobaleconomistatBNPParibas[Jay}Powell???1??????????3???????”[Jay}PowelltousetheJanuarypressconferencetoconsolidateexpectationsforaMarchratehike”wroteLuigiSperanzachiefglobaleconomistatBNPParibas

In its December meeting, the Federal Reserve decided to accelerate the pace of tapering its purchases of U.S. government bonds and mortgage-backed securities. Ending the program sooner gives the Fed more time to raise interest rates: The accelerated timeline now puts the tapering program on track to end by mid-March.

Some analysts, such as Andy Brenner, head of international fixed income at NatAlliance Securities, said the Fed could further accelerate its tapering cycle next week to give itself more flexibility around the March rate hike. Brenner also said the Fed could start discussions about shrinking the size of its $9 trillion balance sheet, another topic raised in December. Kate Duguid

Will the next batch of U.S. earnings disappoint?

The U.S. earnings season is well underway, with results from some of the biggest companies so far proving lackluster.

Wall Street bank JPMorgan’s record full-year earnings hit warn Higher costs eat into profits.A few days later, Goldman Sachs pointed out Spending surged in fourth quarter.

At the same time, growth in the number of users sent is expected to slow significantly Netflix shares plummet — The decline has permeated the stock market more broadly as worries about earnings have put new pressure on speculative tech stocks, which have sold off sharply in the turmoil of the start of the year.

The challenges conveyed by these big companies have brought next week’s slew of results into even more focus. Financial giants Blackstone, Mastercard and American Express followed, with Microsoft, Apple and Elon Musk’s automaker Tesla reporting on Tuesday, Thursday and Wednesday, respectively.

Microsoft is expected to report earnings of $2.30 per share in the December quarter, up from $2.03 in the same period in 2020, on sales of $50.6 billion, according to FactSet. Apple’s quarterly earnings per share are expected to hit $1.89, up from $1.68 on sales of $119 billion.

Overall, fourth-quarter earnings for the S&P 500 blue-chip index are expected to rise about 23% year over year. But just over one in 10 companies in the index had reported reports as of the weekend, leaving room for a downward revision.

Analysts are likely to focus on how companies manage cost pressures amid lingering global inflation. They will also question how much the prospect of looming rate hikes — implemented to stem price spikes — will help or hinder performance.

JPMorgan’s chief financial officer said on an earnings call that the bank should benefit from higher borrowing costs and increased demand for loans. But higher interest rates also erode the present value of future cash flows from high-value tech companies, potentially making them less attractive as investments. Harriet Kraft

How much weakened Omicron’s European business activity in January?

The Omicron coronavirus variant is expected to weigh on European economic activity in January, as a closely watched measure of business confidence is expected to be released on Monday.

Economists polled by Reuters expect IHS Markit’s composite purchasing managers’ index for the euro zone, which tracks private manufacturing and services sector activity, to weaken to a one-year low of 52.6, weighed down by a battered German services sector.

Economic activity in France is expected to show greater resilience, with PMI readings well above those of the euro zone’s largest economy.

Investec economist Sandra Horsfield said: “With Omicron only hitting some euro zone countries across the board this month, notably Germany, the odds of a further decline appear high.” However, she conceded that restrictions on activity are usually not Tightening, as early in the pandemic, suggests a more moderate rate of cooling than previous waves.

In the UK, the composite PMI is expected to rise to 55 from a 10-month low of 53.6 in December, reflecting the earlier spread of the latest wave. “We expect the January report to show that concerns about Omicron have eased as daily infection rates slow and tighter social restrictions become less likely,” Horsfield said.

Headline figures for both the euro zone and the UK are expected to be above 50, suggesting that most businesses report expansion, with manufacturing stronger than services.

While output at factories across Europe is expected to remain constrained by parts shortages, “there are early signs that supply constraints that hampered production last year are starting to ease,” Horsfield said. Valentina Romee