Por Noreen Burke
Investing.com – After a week in which financial markets have been rocked by central banks and governments stepping up the fight against inflation, investors are bracing for fresh volatility this week. Several officials from the Federal Reserve are going to appear, after their third consecutive rise in interest rates, with no respite in sight.
The highlight of the US economic calendar will be Friday’s personal income and spending data, which includes the Fed’s favorite inflation gauge. In the eurozone, Friday’s inflation data is likely to put pressure on the European Central Bank.
On Monday, the ECB president will appear before lawmakers in Brussels, while the results of Sunday’s Italian election will also be closely watched. The yen will remain in the spotlight after the intervention of the Bank of Japan in the currency markets.
For its part, Friday’s Chinese PMI data will give an idea of the state of the world’s second largest economy.
This is what you need to know to start the week.
1. The Fed and US data
The president of the St. Louis Fed, , the president of the Cleveland Fed, , the president of the Chicago Fed, , the president of the Atlanta Fed, , and the Fed vice president, , will appear throughout week.
The economic calendar includes reports on durable goods orders, consumer confidence and new and existing home sales.
The highlight of the economic calendar will be Friday’s personal income and spending data for August, which includes the personal consumption expenditure price index, the Fed’s favorite measure of inflation.
Economists expect the annualized rise in the PCE price index to moderate due to recent declines in fuel costs, although all signs point to the core PCE price indicator, which excludes food and energy, rising.
2. Stock crash
Wall Street’s main indices suffered heavy losses last week: the fell 5.03% -its second consecutive week of falls of more than 5%-, while the closed with a decrease of 4.77% and the left 4%.
The Dow narrowly avoided joining the S&P 500 and Nasdaq in a bear market.
In addition to tightening financial conditions around the world, market sentiment has been hit hard by a number of issues including the conflict in Ukraine, the energy crisis in Europe and the COVID-19 outbreaks in China.
3. Eurozone CPI
Economists expect the rate to accelerate to a new all-time high of 9.6%, which will increase pressure on the ECB, which is wrestling with the need to raise interest rates in the face of a looming recession.
Investors will also be watching the results of Sunday’s Italian election, which is expected to result in the country’s most right-wing government since World War II.
European Union leaders, keen to preserve unity in the aftermath of Russia’s invasion of Ukraine, fear Italy will be a more unpredictable partner, while financial markets worry about the new government’s ability to manage a debt load amounting to close to 150% of GDP.
4. Yen intervention
Japanese authorities finally had enough of Thursday’s weakness, and intervened in currency markets for the first time since 1998.
The Japanese currency posted its first weekly gain of 0.3% in more than a month against the dollar after the intervention.
However, the dollar has risen more than 20% against the yen this year, as the Bank of Japan remains committed to ultra-low interest rates, while the Federal Reserve looks poised to continue to hike rates aggressively until keep inflation under control.
Therefore, the case for a strong dollar remains. Japan, along with its neighbors China and Korea, which are also putting pressure on the dollar, may find itself battling fundamentals, the market and the Fed.
Bank of Japan Governor Haruhiko Kuroda is due to deliver a speech on Monday in which he is expected to provide more information on Japan’s decision to intervene.
5. China PMI
China is due to release data on Friday, which will be closely watched to see if the nascent economic recovery continued in September.
Recent economic data pointed to resilience in August, with faster-than-expected growth in factory output and retail sales underpinning a fragile recovery, though a deepening housing slump weighed on forecasts.
China has announced a wide range of economic support measures since the end of May, but the rapid decline of the dollar against the US dollar has complicated the case for looser monetary support.