By Noreen Burke
Investing.com -- The coming week will bring closely followed inflation figures, while Federal Reserve Chair Jerome Powell and Vice Chair Lael Brainard are to testify at their nomination hearings on Tuesday and Thursday, respectively. It also marks the start of fourth quarter earnings season with several large banks reporting on Friday. Volatility looks set to remain elevated in equities markets after a choppy start to 2022 and Bitcoin remains under pressure. Here’s what you need to know to start your week.
- Inflation data
Wednesday’s consumer price inflation data is expected to show headline CPI breaking above 7% year-on-year - rapidly approaching a four-decade high – with the core rate rising well above 5% year-over-year. Producer price inflation data the following day is also expected to show a surge higher.
The inflation numbers will likely underscore why the Fed could start its rate hike cycle as early as March. Adding to the argument for faster tightening is Friday’s jobs report which indicated that the labor market is at or near maximum employment.
While jobs growth underwhelmed in December, the unemployment rate tumbled to a 22-month low, and wages increased solidly.
The inflation data will be followed by reports on December retail sales and industrial production on Friday.
- Powell testimony
Fed Chair Jerome Powell is due to testify Tuesday before the Senate Banking Committee at a hearing to confirm his nomination to a second four-year term as Fed head while Fed Governor Lael Brainard is to appear before the same committee two days later for a confirmation hearing on her nomination to vice-chair.
Several Fed officials are also due to make appearances during the week, including Esther George, James Bullard, Loretta Mester, Charles Evans, Thomas Barkin and John Williams.
Their comments will be closely watched in the wake of last week's Fed minutes which indicated that a "very tight" job market and elevated inflation might require officials to raise interest rates sooner than expected.
- Earnings
Earnings season kicks off in earnest in the coming week with investors getting a look at fourth quarter results from several large banks, including JPMorgan Chase (NYSE:JPM), Citigroup (NYSE:C) and Wells Fargo (NYSE:WFC) ahead of the market open on Friday.
Massive profit increases from U.S. companies helped fuel a 27% gain in the S&P 500 in 2021, but companies will likely have a difficult time posting similar numbers for the fourth quarter.
Earnings for S&P 500 companies are expected to jump 22.3%, according to Refinitiv data cited by Reuters - a solid increase, but still a slower pace than was seen in the first, second and third quarters.
Investors will be eager to hear about inflation, whether companies believe the supply chain crunch that helped drive prices up last year will ease in coming months and forecasts for 2022.
- Volatility to continue
Indications that the Fed is ready to hike rates faster than previously anticipated as it combats surging inflation roiled markets in the first week of 2022 and that volatility looks set to continue.
Last week saw the Dow fall 0.3%, the S&P 500 decline 1.9% and the Nasdaq drop 4.5%, while the U.S. benchmark 10-year yield soared to a two-year high on Friday on the outlook for Fed rate hikes.
"The sentiment has turned negative," Jake Dollarhide, chief executive officer of Longbow Asset Management in Tulsa, Oklahoma told Reuters. "Right now, the market is nervous and, in the mood, to sell at the first hint of bad news."
Investors have been rotating out technology-heavy growth shares and into more value-oriented shares, which they think may do better in a high interest-rate environment.
Rising cases of the Omicron variant of the coronavirus also contributed to the risk-off mood in markets.
- Bitcoin
Bitcoin has come under pressure since the start of the new year, falling to its lowest level since late September amid a broader selloff in cryptocurrencies driven by concerns over the prospect of a more hawkish Fed.
The world's largest cryptocurrency by market value has fallen over 40% since hitting an all-time high of $69,000 in November driven lower by expectations that the U.S. central bank will hike interest rates sooner than expected.
More aggressive policy action by the Fed would sap investor appetite for riskier assets.
"We are seeing broad risk-off sentiment across all markets currently as inflationary concerns and rate hikes appear to be at the forefront of speculators' minds," Matthew Dibb, COO of Singapore crypto platform Stack Funds told Reuters.
"Liquidity in BTC has been quite thin on both sides and there is risk of a retreat back to the mid-30's on the short term."
Bitcoin was also pressured lower as global computing power of its network dropped sharply last week following the shutdown of Kazakhstan's internet during an uprising, which hit its rapidly growing cryptocurrency mining industry.
--Reuters contributed to this report