Investors will shift their focus from Putin to Powell in the week ahead when the Federal Reserve Chair testifies before lawmakers Wednesday and Thursday for clues in his remarks on how geopolitical risk could impact the central bank’s path forward on lifting interest rates. Traders will also tune in to the Labor Department’s February jobs report Friday for the latest snapshot on the U.S. job market recovery.
Russia’s foray into Ukraine and punishing sanctions on the country and President Vladimir Putin by Western allies have whipsawed markets in recent days and sent prices on oil and other commodities soaring, raising worries of even sharper inflation and other economic disruptions across the globe.
In the U.S., Moscow’s attack on Kyiv makes things more complicated for Fed policymakers already struggling to navigate how to curb soaring price levels without stunting economic growth as they ready to tighten monetary conditions.
“The ambiguity regarding the situation in the Ukraine will continue to challenge risk assets for the time being and it is something that investors should monitor closely over the coming days and weeks,” Commonwealth Financial Network head of investment management Brian Price said in a research note. “Now it is just a question of how many hikes and whether or not we’ll see 50 basis points during the Fed’s March meeting.”
Decades-high inflation has raised the likelihood central bank officials will raise short-term borrowing costs more aggressively than expected to mitigate increasing prices, even stoking the possibility of a double interest rate hike of 50 basis points in mid-March following the FOMC’s next meeting. But with ambiguity over how the Russia-Ukraine turmoil will pan out, Fed watchers anticipate the central bank may hold back on an aggressive first bump on short-term borrowing costs.
“Energy prices have surged and the threat of a supply shock in oil places further burdens on discretionary consumption, possibly weighing on growth and complicating the Federal Reserve’s plans to combat inflation by raising interest rates,” Comerica Wealth Management Chief Investment Officer John Lynch wrote in a research note. “A 50 basis point move at the March meeting now seems unlikely.”
Some of Wall Street’s top banks have also tempered their expectations for a double rate hike. Analysts at Goldman Sachs said in a note last week that geopolitical uncertainty further lowers the odds of a 50-basis point hike in March. Evercore ISI echoed the same sentiment but warned disruption to Russian oil and gas flows and the subsequent shock in energy prices that could follow may worsen already high inflation.
“At a minimum, the further boost to headline inflation from higher energy costs will make the central banks additionally sensitive to any hints of second round effects in the coming months — potentially in the U.S. for instance resulting in a 50bp move some time after March,” Evercore ISI said in a note.
On the unemployment front, traders are expected to get the latest read on the Labor Department’s all-important jobs report on Friday.
U.S. payrolls recorded a stunning jump in January despite a record number of Americans calling in sick from work as the Omicron variant spread rapidly across the country at the start of the year. Non-farm payrolls surged by 467,000 for the month in a major upside surprise from the 125,000-250,000 experts expected.
February’s figures are likely to reflect continued momentum in the labor market’s recovery, with economists surveyed by Bloomberg estimating 400,000 jobs were added during the month.
While an improving labor market is good for U.S. households, the trend again reverts attention back to the Federal Reserve. Widespread job openings have made room for significant leverage for workers, driving wage gains higher and further elevating inflationary pressures. Average hourly earnings grew by 5.7% on a year-over-year basis in January.
“Continued tightness in the labor market indicates that upward pressure on wages and other employment compensation is not likely to moderate soon,” Federal Reserve Governor Michelle Bowman said in a recent speech. “Even with the improving labor market, I still hear from businesses that qualified workers are difficult to find, and labor shortages remain a drag on hiring and on economic growth.”
Fed Chair Powell is scheduled to deliver a monetary policy update before the U.S. House Financial Services Committee on Wednesday and appear in front of Senate Banking Committee members Thursday in meetings that could offer hints on the Fed’s position ahead of its March 16 meeting.
Although earnings season has winded down, corporate results will continue to trickle in, with reports set for release from closely-watched names including Zoom (ZM), Lucid Group (LCID), Target (TGT) and Kohl’s (KSS), among a docket of other companies.
Despite a turbulent start to 2022, earnings momentum has remained strong. According to data from LPL Financial, the S&P 500 is on pace to beat the consensus estimate for earnings per share at $208, 22% higher than the EPS of $170 analysts had projected heading into last year.
“While it may take more time for the market to shift its focus toward solid company fundamentals and get more comfortable with the inflation outlook, we expect stocks to recover early-year losses and rally back to new highs through year-end as that transition takes place,” LPL equity strategist Jeff Buchbinder said.
Economic calendar
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Monday: Advanced Goods Trade Balance, January (-$99.3 billion expected, -$101.0 billion during prior month, downwardly revised to -$100.5 billion); Wholesale Inventories, month-over-month, January preliminary (1.2% expected, 2.2% during previous month); Retail Inventories, month-over-month, January (4.4% during prior month); MNI Chicago PMI, February (62.0 expected, 65.3 during prior month); Dallas Fed Manufacturing Activity, February (3.5 expected, 2.0 during prior month)
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Tuesday: Markit US Manufacturing PMI, February final (57.5 expected, 57.5 prior); Construction Spending, month-over-month, January (-0.1% expected, 0.2% during prior month); ISM Manufacturing, February (58I expected, 57.6 during prior month); ISM Prices Paid, February (78 expected, 76.1 prior month); ISM New Orders, February (57.9 during prior month); ISM Employment, February (54.5 during prior month); WARDS Total Vehicle Sales, February (14.45 million expected, 15.04 million prior month)
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Wednesday: MBA Mortgage Applications, week ended Feb. 25 (-13.1% during prior week); ADP Employment Change, February (375,000 expected, -301,000 during prior month); U.S. Federal Reserve Releases Beige Book
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Thursday: Challenger Job Cuts, year-over-year, February (-76.0% during prior month); Nonfarm Productivity, fourth quarter final (6.6% expected, 6.6% prior); Unit Labor Costs, fourth quarter final (0.3% expected, 0.3% prior); Initial Jobless Claims, week ended Feb. 26 (225,000 expected, 232,000 during prior week); Continuing Claims, week ended Feb. 19 (1.4 million expected, 1.476 million during prior week); Markit US Services PMI, February final (56.7 expected, 56.7 prior); Markit US Services PMI, February final (56.7 expected, 56.7 prior); Markit US Composite PMI, February final (56 prior); ISM Services Index, February (61.0 expected, 59.9 during prior month); Durable Goods Orders, January final (1.6% prior); Durable Goods Orders Excluding Transportation, January final (0.7% prior); Capital Goods Orders Nondefense Excluding Aircrafts, January final (0.9%); Capital Goods Shipments Nondefense Excluding Aircrafts, January final (1.9%)
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Friday: Two-Month Payroll Net Revision, February (709,000 prior); Change in Nonfarm Payrolls, February (400,000 expected, 407,000 during prior month); Change in Private Payrolls, February (408,000 expected, 444,000 during prior month); Change in Manufacturing Payrolls, January (22,000 expected, 13,000 during prior month); Unemployment Rate, February (3.9% expected, 4.0% during prior month); Average Hourly Earnings, month-over-month, February (0.5% expected, 0.7% during prior month); Average Hourly Earnings, year-over-year, February (5.8% expected, 5.7% prior month); Average Weekly Hours All Employees, February (34.6 expected, 34.5 during prior month); Labor Force Participation Rate, February (62.2% expected, 62.2% during prior month); Underemployment Rate, February (7.0% prior month)
Earnings calendar
Monday
Before market open: Nielsen (NLSN), Party City (PRTY), Lordstown Motor (RIDE), Jones Lang LaSalle (JLL), Tegna (TGNA), Viatris (VTRS)
After market close: Workday (WDAY), Ambarella (AMBA), Lucid Group (LCID), HP Inc. (HPQ), Zoom Video Communications (ZM), GoodRx (GDRX), Vroom (VRM), Novavax (NVAX), Oneok (OKE), MBIA (MBI)
Tuesday
Before market open: Target (TGT), AutoZone (AZO), Hormel Foods (HRL), Domino’s Pizza (DPZ), J.M. Smucker (SJM), Kohl’s (KSS), Wendy’s (WEN), International Game Technology (IGT), Urban Outfitters (URBN), Hostess Brands (TWNK)
After market close: Salesforce (CRM), Ross Stores (ROST), Hewlett Packard Enterprise (HPE), SoFi (SOFI), First Solar (FSLR), AMC Entertainment (AMC), Nordstrom (JWN), WW International (WW)
Wednesday
Before market open: Dollar Tree (DLTR), Abercrombie & Fitch (ANF), ChargePoint (CHPT), Dine Brands (DIN)
After market close: Snowflake (SNOW), Veeva (VEEV), Okta (OKTA), Splunk (SPLK), Victoria’s Secret (VSCO), American Eagle Outfitters (AEO),
Thursday
Before market open: Kroger (KR), Best Buy (BBY), Bilibili (BILI), BJ’s Wholesale Club (BJ), Big Lots (BIG), Toronto-Dominion Bank (TD)
After market close: Broadcom (AVGO), Costco (COST), Marvell Technology (MRVL), Gap (GPS), Vizio (VZIO), Sweetgreen (SG), Cooper Cos (COO)
Friday
No notable reports scheduled for release
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Alexandra Semenova is a reporter for Yahoo Finance. Follow her on Twitter @alexandraandnyc
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