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The hustle and bustle of corporate earnings, job reports, and the FOMC meeting are behind us, and next week might be a bit more low-key in comparison.
Despite bank turmoil and a slowing economy, job growth exceeded expectations in April, as reported by the Labor Department on Friday. Nonfarm payrolls increased by 253,000, beating Wall Street estimates of 180,000. In addition, the unemployment rate was 3.4%, the lowest since 1969, and average hourly earnings rose 0.5%, the highest monthly gain in a year, with wages increasing 4.4% annually.
The strong numbers increase the likelihood of a June interest rate hike by the Federal Reserve. Wall Street reacted positively, with the Dow Jones Industrial Average rising almost 400 points, Treasury yields increasing, and robust earnings reports from Apple and banking stocks.
Is a recession on the cards?
The economy may be headed toward a possible recession later in the year, as Gross Domestic Product (GDP) increased only by 1.1% in Q1. Signs of weakness in consumer spending have been evident, such as a 0.7% decrease in credit card spending from a year ago.
Despite recession fears and bank troubles, the Federal Reserve has raised its benchmark interest rate, though it acknowledges the pressure it may put on households. Fed Chairman Jerome Powell stated that the economy would likely face further challenges from tighter credit conditions, as the central bank aims to bring inflation down to a 2% annual level.
Rising wages contribute to inflation pressure, with Powell indicating that a 3% annual wage gain is consistent with the Fed's 2% mandate.
Corporate earnings remain under focus
After a bustling week of corporate earnings, next week might seem a little more subdued. However, we can still anticipate earnings updates from several significant companies, such as Airbnb (NYSE: ABNB), Disney (NYSE: DIS), PayPal (NASDAQ: PYPL), and Electronic Arts (NASDAQ: EA).
As of Friday, 85% of S&P 500 firms have reported earnings. Of these, 79% have exceeded expectations on earnings per share (EPS), while 75% have exceeded revenue estimates, according to FactSet. The blended earnings decrease for S&P 500 firms combining those already reported earnings with those yet to report is 2.2%, representing the second consecutive quarterly decline in earnings.
Among firms that generate more than 50% of their revenue in the U.S., earnings grew on average by 2.7%, indicating that international sales were a headwind for S&P 500 companies in the first quarter.
Inflation under the radar
Regarding economic data, we'll get the latest inflation readings next week, with the April Consumer Price Index (CPI) on Wednesday and the Producer Price Index (PPI) on Thursday. The CPI is expected to have risen 0.4% last month after an increase of 0.1% in March.
Year-over-year, prices were likely up by 4.9%, the slowest pace in two years, decelerating slightly from 5% in March. Core prices, excluding volatile food and energy costs, are expected to have risen by 0.3% last month and by 5.6% annually.
The PPI will follow on Thursday, tracking inflation from the perspective of manufacturers and wholesalers. Producer prices are projected to have risen by 0.3% last month, recovering from an unexpected 0.5% decrease in March. Year-over-year, they are likely up by 2.4%, the slowest pace since January 2021, decelerating from 2.7% in March.
Lastly, on Thursday, Bank of England (BoE) policymakers will hold their latest meeting on interest rates, following the U.S. Federal Reserve and European Central Bank (ECB) that raised interest rates. As a result, BoE policymakers are anticipated to increase the bank rate by 25 basis points to 4.5%, marking the 12th consecutive rate hike since early last year.
However, the UK is experiencing its highest inflation in four decades, currently at an annual rate of 10.1%, coupled with a stagnant economy. The latest GDP report, due on Friday, is expected to show growth of just 0.1% in the first quarter and stagnation on an annual basis.