Investing.com -- U.S. inflation data will be front and center this week and could be the deciding factor in the near-term direction for markets. Meanwhile, retail sales data along with earnings results from some big-name retailers will give fresh insights into the strength of consumer spending, a key driver of the economy. The UK and China are to release what will be closely watched economic data. Here’s what you need to know to start your week.
- Inflation numbers
Investors will be looking at the U.S. producer price index and consumer price index data this week for any indication that price pressures are finally easing after months of strong inflation gave rise to fears that the Federal Reserve may not cut interest rates this year.
Markets got some relief earlier this month when Fed Chair Jerome Powell indicated that the central bank was still looking to eventually cut rates and the latest U.S. employment report showed signs of cooling in the labor market.
Analysts expect Wednesdays crucial CPI report to show underlying inflation rising 3.6% on a year-over-year basis, which would be the smallest increase in over three years.
But a hotter-than-expected inflation reading would likely price out rates cuts for the rest of the year, reigniting market volatility.
- Retail earnings
Investors will get some fresh insights into the health of the U.S. consumer this week with April retail sales data on Wednesday, plus earnings results from major retailers Walmart (NYSE:WMT) and Home Depot (NYSE:HD).
So far, bullish investors have gained confidence from a solid earnings season. Standouts included generally strong reports from most of the so-called Magnificent Seven tech and growth giants whose shares helped propel the market higher last year and continue to have a huge weighting in the S&P 500.
Strong earnings have “got investors feeling more comfortable about being in this market," Art Hogan, chief market strategist at B Riley Wealth told Reuters. However, “the trajectory of inflation is always going to be important to us while we're in a cycle where we expect the next thing for the Fed to do is to cut rates."
- China data
China is to publish a string of economic data on Friday that will show how the world’s number two economy was performing at the start of the second quarter.
April home price data will give fresh insights into the state of the property sector which has been engulfed by a debt crisis for about three years now, leaving property developers on the brink of collapse.
Industrial production, retail sales and fixed asset investment are seen accelerating year on year.
Comments from policymakers at last month’s Politburo meeting have primed investors for a wave of stimulus measures from Beijing to boost economic recovery, keeping the market mood buoyant for now.
- UK data
Last week the Bank of England moved closer to cutting interest rates, but markets are divided on whether a first cut will come at the bank’s next meeting in June or whether policymakers will hold out for longer.
Two official sets of employment data and two rounds of inflation figures are due before the BoE’s next meeting on June 20.
The first of the two jobs reports on Tuesday will be closely watched for signs that pay increases are fueling price pressures. Annual pay growth is still running hot, while labor supply is stagnating.
Economists are expecting average weekly earnings, excluding bonuses, to have risen by an annual 5.9% in the first quarter. While still solid, signs that wage growth is moderating would likely bolster expectations for a June cut.
- Oil prices
Oil prices ended last week little changed with Brent logging a 0.2% loss, while crude futures recorded a rise of 0.2%.
Expectations that U.S. interest rates could remain higher for longer have weighed on oil prices as higher interest rates typically slow economic activity and weaken oil demand.
The stronger U.S. dollar has also weighed, making greenback-denominated commodities more expensive for buyers using other currencies.
Oil prices have also been pressured by rising U.S. fuel inventories coming into the typically robust summer driving season.
Prices found some support after data on Thursday showing China imported more oil in April than the same month last year. China's exports and imports returned to growth in April after contracting the previous month.
Energy traders will be looking at this week’s inflation data which will dictate the future direction of interest rates.
(Reuters contributed reporting)