Market snapshot: preparing for a big week in global finance

American companies begin publishing quarterly results this week and there's a slew of economic data and speculation about US interest rates. Our head of markets explains what to look for.

Markets slipped Monday amid light volumes, as investors prepared for what could be a seminal week ahead of some major economic and corporate releases.

PepsiCo Inc (NASDAQ:PEP) and Delta Air Lines Inc (NYSE:DAL) will be the first companies in investors’ sights before the banks take centre stage later in the week. The US reporting season will provide proof of how inflation has impacted revenues and profits, with recent profit warnings from retailers such as Target Corp (NYSE:TGT) and Walmart Inc (NYSE:WMT) setting an uncomfortable scene.

With escalating energy and input costs biting, concerns have centred on the financial health on both consumers as well as companies themselves.

Guidance comments will be of particular significance in drawing out the corporate insight on consumer behaviour amid the current backdrop of slowing growth and aggressive Federal Reserve actions. The outlook is also likely to estimate how behaviour might evolve in the remainder of the year, thus setting out a fresh agenda for investors to ponder.

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Alongside an inflation print due on Wednesday which is expected to run hot once more, the likelihood of the Federal Reserve maintaining its hawkish position is also being priced in.

A further local issue for investors has been the strength of the US dollar, which has risen strongly after attracting significant buying interest due to its haven status. This in turn creates a headwind for US companies who derive most of their earnings from overseas, as those currencies are less valuable when converted back to the home currency.

Going into the earnings season, markets have struggled after a particularly weak first half which has seen the Dow Jones decline by 14%, the S&P500 by 19% and the Nasdaq by 27% in the year to date, with the knock-on effect from the world’s largest economy impacting most other developed markets.

Asian markets are also dealing with some troubling local issues, especially in China where fresh Covid-19 curbs are being adopted following a rash of cases of a new and highly-transmissible variant. Further lockdowns are likely to follow, thus putting the brakes on an economic recovery which had tentatively started to emerge from its recent slumber. This adds fuel to the fire of the bear case, with economic data in the region later in the week likely to confirm a sharp contraction in the region for the first half of the year.

In the UK, weakening retail sales were the latest indication of pervasive price pressures, despite a brief consumer boost over the prolonged Jubilee weekend.

The increasingly unstable economic outlook for the UK has shown most strongly in the weak performance of the domestically-focused FTSE250, which is down by 20% in the year to date, as well as the weakness of sterling, even if some of that decline is due to the strength of the US dollar.

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The FTSE100, meanwhile, continues with mixed reviews after another tepid start in early exchanges. Mining and oil stocks which had provided some insurance earlier in the year have weakened somewhat amid concerns of generally falling demand of late.

As with many other developed markets, the indices are as yet unable to find an anchor from which to recover, although the 2.8% decline of the premier index is marginal in comparison with many of its global peers.