Top 5 Things to Watch in Markets in the Week Ahead

By Noreen Burke — Investors will turn their attention to U.S. inflation figures in the coming week after Friday’s surprisingly disappointing April jobs report. Signs of rising inflation pressures could reignite the debate over how soon the Federal Reserve may begin to tighten monetary policy. Multiple Fed speakers are to make appearances in the coming days and their comments will be closely watched. Energy traders will be monitoring the shutdown of the largest U.S. gasoline pipeline after a ransomware attack. The tug of war between value and growth will likely continue in the equities market as earnings season winds down. And across the pond, the UK is to release data on first quarter GDP. Here is what you need to know to start your week.

  1. Inflation fears

Wednesday’s consumer price index figures for April get top billing on the U.S. economic calendar this week amid concerns among investors that rising price pressures could prompt the Fed to start scaling back monetary support measures sooner.

While inflation is on the rise, Fed policymakers have repeatedly said the increase is due to temporary factors.

The inflation numbers are coming in the wake of data on Friday showing U.S. job growth slowed sharply last month, with the economy adding just 266,000 jobs, far short of forecasts for 978,000. The unexpectedly weak data raised doubts over the expectations of some investors that the Fed could start tapering stimulus measures later this year.

PPI figures are due out on Thursday, followed by retail sales data on Friday. Retail sales jumped in March boosted by stimulus checks and this effect is expected to carry over into April.

  1. Pipeline shutdown

Top U.S. fuel pipeline operator Colonial Pipeline has shut its entire network, without saying when it would reopen, after a cyber-attack involving ransomware on Friday.

Colonial is the main source of gasoline for the East Coast and also serves some of the largest U.S. airports. The incident has highlighted how vulnerable U.S. energy infrastructure is to hackers.

A prolonged outage of the network could trigger price increases at gasoline pumps ahead of peak summer driving season, a potential blow to U.S. consumers and the economy as pandemic restrictions are eased.

The outage could also potentially affect oil refineries on the Gulf Coast if refiners are forced to reduce crude processing because part of the distribution system is offline.

  1. Fed speakers

Some investors have become skeptical of the Fed’s assurances that any inflation resulting from the government’s massive economic stimulus programs will be transitory, with prices for everything from raw materials to real estate already showing big gains.

Several Fed speakers are on the calendar in the coming days, including Vice Chairman Richard Clarida, who is due to speak shortly after Wednesday’s inflation figures are released.

Other policymakers due to speak during the week include Fed Governor Lael Brainard, Chicago Fed President Charles Evans, San Francisco Fed President Mary Daly, New York Fed President John Williams and Dallas Fed President Rob Kaplan.

  1. Stocks tug of war

While some tech stocks got a boost Friday in the wake of the disappointing jobs report, some portfolio managers say that blow-out earnings from several large tech companies over the last few weeks are not enough to keep making outsized bets on the sector.

Instead, those fund managers say that they are continuing to rotate into value and cyclical stocks – whose fortunes are closely tied to economic conditions – in anticipation that the economic recovery will be longer and more gradual than originally anticipated.

That trend looks set to continue and investors will also be looking at quarterly results from companies such as Disney (NYSE:DIS), Marriott (NASDAQ:MAR), Airbnb (NASDAQ:ABNB) and Tyson Foods (NYSE:TSN), as a first-quarter earnings season which has been notable for far higher-than-expected profits winds down.

  1. UK GDP

The UK is to release data on first quarter GDP on Wednesday which is expected to confirm that the recovery from the pandemic is already underway.

While growth over the whole period is expected to have contracted the monthly figures for March may show a sharp increase as the vaccination rollout allowed pandemic restrictions to be eased.

Last week the Bank of England said the economy was set to return to its pre-pandemic size in the last quarter of 2021, three months earlier than previously thought and raised its forecast for growth in 2021 to 7.25% from February’s estimate of 5.0%.

That would be the fastest annual growth since 1941, but it comes after output plunged by 9.8% in 2020, the biggest drop in more than 300 years.

–Reuters contributed to this report