Week Ahead: Fed, ECB & Earnings Reports

In the first week of May, key financial events from central banks' meetings and interest rate decisions to earnings releases and economic data are expected to take place. 

Such events can have a substantial influence on the market and can provide valuable insight into the state of the world’s biggest and third-largest economies. Here’s what traders and investors should know about this week ahead:

Fed Meeting & April’s Jobs Reports: How Is the US Economy Faring? 

Inflation was no stranger to the headlines in the past couple of months and central banks like the Federal Reserve had to adopt a hawkish tone to surmount it. However, since inflation has been sending mixed signals in the past couple of days, one is left to wonder whether the Fed will continue its hawkishness or adopt a more dovish stance instead. 

Last Friday, the Personal Consumption Expenditures Index (PCE), which is a very popular inflation gauge among Fed officials, rose by 4.2% in the 12 months that ended in March compared to a revised 5.1% in February. This drop suggests that the Fed’s hawkishness in taming inflation may be fruitful. Core PCE also slightly dropped to 4.6% in March from the year compared to February’s 4.7%. 

The PCE is a popular measure of inflation that looks into the US households’ cost of living trajectories and measures inflation by following the prices of certain goods and services. 

As such, the latest figures may be suggesting that on the one hand, the Fed’s hawkish rate hikes may be proving to be helpful as inflation may have eased a tad. On the other hand, however, these figures according to many economists still suggest the need for more hawkish rate hikes as inflation is still stubbornly high. 

In addition, Employment Cost Index data (ECI), which is an index measuring the changes in the cost of labor,  revealed that compensation for US workers grew in Q1 2023. This, in turn, can indicate that salary inflation is still high, hence adding more pressure on the Fed to tame it. 

Accordingly, now, more than ever, traders and analysts may want to keep an eye on the Fed’s scheduled two-day monetary decision meeting on Tuesday, May 2nd, and Wednesday, May 3rd, to see how they will tackle inflation and the ailing economy this time. This is especially important due to the fact that the Fed seems to be wavering between the need to raise interest rates, which heightens the chances of a recession, and to take a pause on rate hikes in order to help the economy regain some of its momentum. 

While it is yet to be determined whether the Fed will be more hawkish or dovish this time around, the expectations for their upcoming meeting stand at another 25 basis-point hikes. If the Fed sticks to the expected rate hike, then interest rates would reach a range of 5%-5.25% which is its highest level since 2007. 

With some economists even calling this week’s meeting a “pivotal meeting” as we approach “the hardest mile for the Fed in this marathon,” it would be interesting to see what decisions will be reached and how these will affect the markets.

What Will the ECB Do Next?

The Fed’s meetings are not the only expected central banking events this week. On Thursday, May 4th, the European Central Bank (ECB) is also expected to reveal its interest rate decision. Many believe that preceding key economic data releases like the ECB’s bank lending survey and the Eurostat’s April inflation reading on Tuesday may affect the central bank’s rate decision.  The former will show how credit growth was affected by the recent financial pressures, while the inflation data is expected to show a slight rise in headline inflation. 

Moreover, it is believed that Wednesday’s Fed rate decision may also be taken into account by the ECB in their meeting. As it stands, the ECB is also expected to increase rates by 25 basis points, but the aforementioned economic events may cause this to change. Therefore, it may be interesting to keep track of Tuesday’s inflation and ECB survey releases to see if any substantial information will be revealed. (Source:Bloomberg)

Q1 Earnings Continue in Full Swing 

Earnings season continues this week as well with reports from tech giants AMD (AMD) and Apple on Tuesday and Thursday respectively. In addition, pharma leader Moderna (MRNA) is also expected to report its financial results on Thursday. 

Analysts predict AMD to earn 56 cents per share which is below last year’s quarter’s EPS of $1.13 and for its revenue to drop to $5.3 billion compared to last year’s $5.89 billion. These figures come against the backdrop of a weak PC market and weakening gaming segment revenues due to lower demand. Irrespective of these predictions, it is worth noting that AMD was able to beat analyst expectations numerous times in the past since the beginning of the year the company rose by about 40%. 

Like AMD, Apple (APPL), was also able to sustain an ostensible growth since the beginning of the year as it grew by 35.6%. Since Apple is a renowned player in the technology industry, its upcoming earnings results are expected to provide a good look into how the big tech industry is faring lately. This can be especially crucial given the latest tech industry layoffs. As it stands, analysts forecast an EPS earning of $1.43 and revenue of $92.90 billion for Apple, which is below the year-ago quarter figures of $1.52 and $97.28 billion. 

Moderna, one of the biggest names in the pharmaceutical field and one to have greatly benefited from the coronavirus pandemic is expected to provide valuable insights into the state of the pharmaceutical industry this week. 

Wall Street projections for Moderna stand at an EPS loss of $1.77 on revenue of $1.18 billion which compares to the year-ago quarter whereby EPS earnings stood at $8.58 and the revenue was $6.07 billion. Overall, in 2023, Moderna did not shine as it did in previous years, and the company lost 25.7% of its value since the begging of the year. 

All in all, an eventful week awaits traders and analysts alike as a plethora of factors ranging from central banks’ decisions to inflation data and earnings reports can shift the course of the markets and even create volatility. One will have to see how this week turns out.