Markets’ Week Ahead: What Does the Third Week of May Have in Store?

This week ahead, a myriad of economic events from economic data releases like GDP and CPI to earnings reports from various companies and Fed members’ speeches are expected to take place. These events can play a key role in the economy and can shift the trajectory of the markets. From the Fed to earnings and economic releases, here’s what you should expect from this week ahead:

How Might Fed Officials’ Speeches Shift the Markets?

Several Federal Reserve members are expected to speak this week and provide valuable insight into the state of the economy and the US central bank’s economic outlook. Chicago Fed President Goolsbee, Cleveland Fed President Mester, Richmond Fed President Berkin, and Atalanta Fed president along with Chicago Fed President Goolsbee are expected to speak.  Fed Chair, Jerome Powell is also expected to speak on Friday ahead of next week’s Fed FOMC Minutes meeting on the 24th of May. 

These remarks come against the backdrop of an overall inflationary economy, recession fears, and US debt ceiling issues. According to Treasury Secretary, Janet Yellen, if the Fed does not address the US debt ceiling, then it can run out of money by the beginning of June.  

So far, other Fed officials that have spoken have shown a hawkish Fed approach. Chicago Fed President Austan Goolsbee said in an interview that the Fed is still trying to tame inflation without causing a recession. On the flip side, US President, Joe Biden, stated on Sunday, that he is “optimistic” when it comes to raising the US debt ceiling in order to avoid a default. 

Therefore, it may be worthwhile to keep track of the Fed officials’ speeches in order to stay in the loop on any economic decisions and ahead of any potentially substantial market shifts that may come along. 

Earnings: Chinese Tech Companies and US Retailers

Earnings releases from various companies ranging from Chinese tech companies like Baidu (BIDU) and Alibaba (BABA) to US retailers like Walmart (WMT) and Target (TGT) are expected to take place this week and can reflect the state of the biggest two economies in the world.

Chinese tech giants, Baidu and Alibaba are scheduled to report their earnings this week on Tuesday, May 16th, and Thursday, May 18th, and can reveal how the Chinese economy is faring following the uplift of its COVID restrictions.

As it stands, the outlook for Alibaba’s earnings seems to be more positive. Analysts expect Alibaba to report an EPS of $1.35 which is higher than the year-ago quarter’s EPS of $1.18. On the flip side, its revenue is expected to have dropped from last year’s $28.35 billion to $30.28 billion. Although the outlook is more optimistic, traders may want to keep in mind the fact that the leading e-commerce behemoth had a less-than-stellar year. Since the beginning of 2023 and up till now, Alibaba’s share price fell by 7.2%. 

Baidu which also did not perform that impressively in 2023 as it only rose by 0.7% since the beginning of the year, is actually expected to report higher quarterly profit and revenue. The search-engine company is projected to report an EPS of $1.95 which is about 9% higher than the year-ago quarter and revenue of $4.39 billion. Given some of Baidu’s past earnings reports during which the company reported above estimates, it might be interesting to see whether it can sustain the same pattern this time around or if it will report below estimates.  (Source:Nasdaq)

Moreover, retail giants Target and Walmart are expected to report earnings on Wednesday, May 17th, and Thursday, May 18th respectively. The American retailers’ quarterly earnings can provide a solid outlook on consumer spending habits amidst the latest economic downturn. 

While Walmart seems to have ended 2022 on a more positive note, Thursday’s upcoming earnings are expected to show a decline in its revenue and EPS. Walmart’s YoY earnings are predicted to have dropped by 8.5% to land at an EPS of $1.19 while its revenue is projected to have dropped by 4.5% to reach $135.23 billion. This downward trend may be attributed to rising inflation, which according to Walmart’s CFO, David Rainey, has put “considerable pressure” on consumer spending. Despite this, so far in 2023, the company was able to grow by 6.6% since the beginning of the year. 

Target’s earnings predictions also seem to be on the less-positive side as consumers seem to be holding back from spending. Target’s quarterly EPS is expected to land at $1.76 down from the year-ago quarter’s EPS of $2.19 and since the beginning of the year, the company’s stock experienced notable volatility but overall it increased by 4%. 

Key Economic Data: Eurozone CPI and GDP Releases

Other events that traders may want to keep track of this week include the Eurozone GDP and CPI data which are set to occur on Tuesday, May 16th, and Wednesday, May 17th respectively. 

On Tuesday, the Eurozone’s Q1 GDP is to be released and analysts believe that its economy is expected to have risen by 0.1% only in the first quarter of the year with other economists pointing towards signs of economic recession and stagnation. The scheduled CPI release will also be of interest to many as it can gauge how inflation is affecting the euro area’s economy. 

Other key economic releases that may help navigate the markets and the economy better are the UK’s upcoming job reports on Tuesday which will show how inflation is affecting the UK’s labor market. This report can play a detrimental role in the Bank of England’s (BoJ) interest rate decisions and monetary policy-making on June 16th. 

All in all, an eventful week awaits us and each of the aforementioned events can play a key role in the development of the economy in general, and the markets in particular. As such, staying ahead of these events and keeping track of their developments might be helpful.