Top 5 Things to Watch in Markets This Week

Heres what you need to know to start your week.

1. Federal Reserve Minutes

On Wednesday the Fed releases the minutes of its July meeting, which will be scrutinized for policymakers‘ views on when to start scaling back the Fed’s monthly bond purchases, as well as their outlook on the economy.

Last month Fed officials declared the recovery intact despite the rise of the delta variant and since then the stronger-than-forecast July jobs report prompted several policymakers to suggest the tapering of asset purchases might start sooner rather than later.

“I know some Fed officials are pushing for it to happen at the September meeting, but that is very unlikely,” said Jim O'Sullivan, chief U.S. macro strategist at TD Securities.

“November is possible if the next two employment reports are strong enough, but the odds favor December as the time of the formal announcement.”

2. U.S. retail sales

The U.S. economy is growing strongly but the spread of the delta variant remains a headwind so upcoming economic data will provide a fresh insight into consumer demand after a report on Friday showing that consumer confidence fell to its lowest level in a decade.

Consumer spending accounts for around 70% of U.S. economic output.

Investors will be eyeing Tuesday‘s U.S. retail sales data to see whether the shift in spending from goods to travel, leisure and services, which aren’t reflected in retail sales, continued in July.

Economists are forecasting a 0.2% fall, amid another expected steep decline in auto sales.

Other reports on the slate include industrial production on Tuesday and initial jobless claims Thursday as well as the Feds Empire State manufacturing index on Monday and the Philadelphia Fed manufacturing survey on Thursday.

3. Retail earnings

Retail earnings could also shed more light on the strength of consumer demand in the coming week, with several large retailers including Walmart (NYSE:WMT), Target (NYSE:TGT), Macys (NYSE:M), Lowe's (NYSE:LOW) and Home Depot (NYSE:HD) reporting quarterly results.

Ross Stores (NASDAQ:ROST), TJX (NYSE:TJX) and Bath & Body Works (NYSE:BBWI) will also be reporting.

In particular, investors will be on the lookout for insights on how retailers are dealing with rising prices and labor market shortages.

The earnings results come at the end of a stellar U.S. second-quarter results season. S&P 500 earnings are expected to have jumped 93.1%, well above prior expectations of 65.4%, according to Refinitiv IBES.

4. China recovery

China, which is dealing with its largest outbreak of Covid since the early days of the pandemic, has imposed mass testing and travel restrictions, crimping economic activity.

Several Wall Street investment banks, including Goldman Sachs last week cut their China growth forecasts for the rest of the year.

Data on retail sales, industrial production and fixed asset investment all due out on Monday will show how the economy fared in July. The numbers are expected to slow, adding to concerns that the recovery in the worlds second-largest economy is losing momentum.

The recovery from the pandemic has been uneven in China, with export demand driving most economic growth, while domestic demand has returned more slowly.

5. New Zealand rate hike

The Reserve Bank of New Zealand bank meets on Wednesday and looks set to become the first major economy to raise interest rates since the pandemic hit as its red-hot economic recovery continues.

Super-strong jobs data have cemented expectations of a hike, which would be New Zealand's first since mid-2014. This is in sharp contrast to 2020, when rates were slashed 75 basis points to 0.25% and a move below zero became a real possibility.

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