The US benchmark stock index, the S&P 500, traded in a volatile 5 per cent range last week before closing 0.8 per cent higher.
The main drivers of the volatility were surging inflation, monetary policy tightening, and ongoing tensions on the Russian-Ukraine border.
The Australian sharemarket, the ASX200, fell almost 5 per cent before a rebound on Friday helped the index trim losses to a more “respectable” 2.6 per cent for the week.
The causes of the fall were continued volatility on Wall Street and stronger-than-expected Australian inflation.
Here are the top five things to watch in markets this week.
1. RBA meeting
The RBA meets on Tuesday afternoon for the first time in 2022. Domestic economic data, including employment and inflation, have been stronger than expected and will likely prompt the RBA to end its $350 billion quantitative easing (QE) program.
The RBA is also expected to bring forward its rate hike guidance to the first half of 2023, still lagging pricing in the interest rate market that expects the first RBA rate hike to come in April 2022 and a further three rate hikes to happen before December 2022.
2. US Q4 2021 earnings results
On Friday, a stellar earnings report from Apple helped restore some much-needed confidence to a nervous sharemarket. This week will see earnings reports from companies including Meta Platforms, Amazon, Alphabet, and PayPal.
The Amazon share price has fallen over 25 per cent from its November peak and needs a good earnings report to reverse the trend. The market expects Amazon to report revenue of $137.7 billion in Q4 and earnings per share of $3.74.
3. Bank of England to raise interest rates
Despite the Omicron wave, the labour market in the UK is tight, and inflation is shooting higher.
In response, the Bank of England will follow up its 15 basis-point interest hike in December with a 25 basis-point hike at its meeting this week, and provide guidance that it intends to begin quantitative tightening (QT) in March.
4. US jobs data
Jobs data in the US for January will allow traders to gauge the impact of the Omicron variant and the implication for the Federal Reserve’s tightening path. The market expects to see payrolls increase by 200,000 and the unemployment rate remain low at 3.9 per cent.
5. Will Russia invade Ukraine?
A recent Pentagon report suggests Russia has enough troops to invade the entire Ukraine, leaving markets on edge. Russia has denied it intends to invade, and talks are continuing.
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