Top 5 Things to Watch in Markets in the Week Ahead

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imageEconomy3 hours ago (Sep 19, 2021 12:58)

© Reuters.

By Noreen Burke — The Federal Reserve meeting will be the highlight of the coming week and while no change is expected officials are likely to hint that they are moving closer to scaling back stimulus measures. Besides the Fed meeting, the U.S. economic calendar is light, with mostly updates on the housing market and some earnings. Several other central banks will also hold meetings in the week ahead, including the Bank of Japan and the Bank of England. Meanwhile, embattled Chinese property developer Evergrande faces the prospect of defaulting on its debts, stoking fears of contagion that could spread to markets outside of China. Here’s what you need to know to start your week.

  1. Federal Reserve meeting

The Fed will begin its two-day policy meeting starting Tuesday ahead of its policy announcement on Wednesday afternoon and investors will be on the lookout for any details of the central bank’s plans to start paring back its $120 billion a month emergency stimulus program.

The Fed’s timeline for scaling back economic stimulus is important as it represents a first step towards eventual interest rate hikes.

Several Fed officials have said tapering should start this year, a view Fed Chair Jerome Powell may echo, while stressing a rate hike is still way off.

The Fed may stick to a cautious approach giving economic uncertainty due to rising COVID-19 cases and a weak jobs report for August.

  1. Economic data

The U.S. data calendar for the week ahead is centered around housing figures, which are set to stabilize after a slight uptick in mortgage approvals for home purchases in recent weeks.

Data on housing starts and building permits data are due out on Tuesday, followed by figures on existing home sales on Wednesday and data on new home sales is due for release on Friday.

Market watchers will also be looking at Thursday’s report on initial jobless claims amid concerns over the hit to the economic recovery in the current quarter from the spread of the Delta coronavirus variant, especially among people who are hesitant to take vaccines.

  1. Stock markets

Wednesday’s Fed policy announcement will be the main directional driver for equity markets in the coming week.

Besides concerns over the prospect of tighter monetary policy due to Fed tapering equity markets are being buffeted by worries that the Delta variant could slow economic growth in the months ahead and the prospect of corporate tax hikes.

September, traditionally a weak month for the stock market, has so far seen the S&P 500 slip almost 2%.

Investors will also be watching a handful of earnings with FedEx (NYSE:FDX), General Mills (NYSE:GIS), Nike (NYSE:NKE) and Costco (NASDAQ:COST) all on the docket.

Nike shares took a hit early last week following a downgrade from BTIG on supply chain concerns.

  1. Central bank meetings

Besides the Fed, several other major global central banks are also holding meetings in the coming days.

The Bank of Japan, which also meets on Tuesday and Wednesday, is widely expected to keep policy steady but may warn about growing risks to exports from supply disruptions.

On Thursday, Norway’s central bank is set to become the first from the developed world to hike rates since the pandemic, likely raising its main 0% rate to 0.25%.

The Bank of England is unlikely to change policy at its Thursday meeting but may indicate whether it still views inflation as transitory.

  1. Crunch time for Evergrande

Indebted Chinese property developer Evergrande (OTC:EGRNY) has a bond interest payment of $83.5 million due on Thursday, with investors pricing in a high likelihood of default.

That such a tiny amount could be the tipping point for a $355 billion behemoth with more than 1,300 developments across China and over $300 billion of liabilities shows how bad things are.

China’s second largest developer has been scrambling to raise cash, with fire sales on apartments and stake sales in its sprawling business network, but with little success.

Concerns that Evergrande (HK:3333) could default on its debts is spilling over into China’s financial markets and even risks contagion that could spread to markets beyond China.

–Reuters contributed to this report

Top 5 Things to Watch in Markets in the Week Ahead

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