What Should We Expect from Markets this Week? | Daily Market Analysis

Key events:

• Canada – GDP (MoM) (Sep)   
• UK – BoE Gov Bailey Speaks     
• USA – CB Consumer Confidence (Nov)

Friday's U.S. jobs report for November will be the main event this week as investors remain hopeful that the Federal Reserve will soon slow the pace of rate hikes. Fed Chairman Jerome Powell's midweek remarks will be closely watched. Eurozone inflation data will also be in focus, as will China's PMI data amid fears of renewed COVID-19 cases. Here's what you should keep in mind this week.

The state of the labor market

Expectations that the Fed may soon slow the pace of steep rate hikes intensified after last week's release of the central bank's November meeting minutes. Friday's U.S. jobs report for November will put those expectations to the test.

Economists expect the U.S. economy added 200,000 jobs, the smallest gain since December 2020.

This will be the last U.S. NFP report before the Fed's final meeting of the year in December.

But investors have reason to remain cautious: 5 of the last 6 employment reports were better than forecasts, and another strong release could turn out to be trouble for the U.S. stock market.

Fed speeches

Fed Chairman Jerome Powell will discuss the economic outlook during a speech at the Brookings Institution on Wednesday.

While Powell said the Fed could move to lower rate hikes next month, he also said the rate could end up being higher than policymakers thought by next year.

The economic calendar also includes the ISM Manufacturing PMI and the Fed's favorite measure of inflation, the PCE Core Price Index. Both reports will be released on Thursday.

Other reports for the week include the nonfarm payrolls figure from ADP, initial jobless claims, consumer confidence, and the Fed's Beige Book.

Retail Sales

Since Wall Street reopened yesterday after the Thanksgiving holiday, investors' attention will be focused on how retail sales are doing during the holiday shopping period, as well as the Fed's next steps.

The Black Friday sales have begun amid persistent high inflation and slowing economic growth. Retailers are offering significant discounts both online and in physical stores, which will likely impact Q4 profit margins.

Online spending, according to an Adobe Analytics report released Saturday, rose 2.3% on Black Friday to a record $9.12 billion, but the percentage increase was well below the annual inflation rate, which is now 7.7%.

U.S. retailer stocks have been a barometer of consumer confidence against the backdrop of high inflation. The S&P 500 retail index is down just over 30% this year, while the S&P 500 index is down 15%.

Inflation in EU

While there are tentative signs that U.S. inflation may be peaking, Eurozone inflation data released Wednesday are expected to show that price pressures in the bloc remain strong.

Eurozone CPI reached 10.6 percent in October, more than 5 times the European Central Bank's target of 2 percent.

At its October meeting, the ECB raised the rate by 75 basis points to 1.5%, bringing the total number of hikes to 200 basis points since July, the fastest monetary policy tightening in history.

Minutes of the ECB's October meeting, released last week, showed that while officials were adamant about the need for further rate hikes to lower inflation, they could not fully agree on the ultimate goal and pace of the hike.

China PMI Index

As China struggles with a record number of COVID-19 infections and new restrictions, hopes of the world's second-largest economy reopening in the first quarter of 2023 have faded.

The country's PMI data will be closely watched Wednesday as widespread COVID-19 restrictions continue to depress economic activity.

Authorities have vowed to continue imposing restrictions because of the spread of the virus, despite growing public outcry and increasing damage to the economy.

On Friday, China said it would reduce the number of cash banks must hold as reserves for the second time this year, freeing up liquidity to support a weakening economy.