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Federal Reserve’s Policy Meeting and Rate Cut Expectations

Another busy week is ahead in markets with the Federal Reserve’s latest policy meeting taking center stage. The U.S. will release its newest employment report on Friday, and the final of the “Big Seven” big tech names will report earnings. Meanwhile, the euro zone and China are expected to release important economic data. Here’s what you need to know to start your week:

Fed decision

Investors are waiting for clues about whether the Fed still plans to cut interest rates at some point this year when officials finish their two-day policy meeting on Wednesday. Fed Chair Jerome Powell has said the central bank needs more confidence that inflation is moving towards its 2% goal before making rate cuts.

Friday’s inflation data for March, which matched expectations, didn’t change market expectations for the first rate cut in September.

Expectations for rate cuts have faded as labor market and inflation data continue to exceed expectations. Initially, financial markets expected the first rate cut in March, but they pushed back that expectation to June and then September.

Nonfarm payrolls

Friday’s monthly jobs report will give an updated look at the strength of the U.S. labor market, with economists expecting the economy to have added 243,000 jobs in April, down from 303,000 in March. Economists expect the unemployment rate to remain at 3.8%.

Before Friday, there will be ADP data on private sector hiring, as well as the JOLTS job openings report and other survey data that will help set expectations.

Investors will also watch Tuesday’s data on the employment cost index for signs that inflation pressures from the labor market are cooling.

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Tech earnings

The final two of the “Big Seven” tech giants, Amazon on Tuesday and Apple on Thursday, are set to report earnings.

Apple shares have dropped over 10% so far this year, and the iPhone maker is expected to report a decline in first-quarter earnings after China smartphone shipments fell 19%.

Investors will closely watch Amazon’s cloud computing business, and they will also pay attention to what the online retailing giant says about consumer spending.

Strong reports from Microsoft and Google parent Alphabet on Thursday helped the S&P 500 achieve its biggest weekly gain since November.

But some peers like Tesla and Facebook parent Meta Platforms have had mixed performance.

We warned that potential earnings beats might not lead to stock gains during the earnings season, given the already strong run-up in stocks leading up to it and stretched positions,” JPMorgan analysts said in a note. “Indeed, stock price reactions in the U.S. have been underwhelming so far.

China PMI data

Investors will watch Chinese manufacturing data for April to see if a long-awaited recovery in the world’s second largest economy is gaining momentum after stronger-than-expected data last month.

Official figures for China’s purchasing managers’ index are due on Tuesday, followed by the Caixin/S&P Global manufacturing PMI.

Upbeat data would be a relief to policymakers trying to boost growth and investor sentiment.

Global investment houses have become more bullish on Chinese stocks, helping the blue-chip index gain more than 10% from its February low. But Beijing faces a dilemma over its currency. The yuan is weakening against a strong dollar but is stronger against its major trading partners—a troubling sign for China’s export-dependent economy.

Eurozone data

The eurozone will release inflation and economic growth data on Tuesday, likely strengthening expectations for a June rate cut by the European Central Bank.

Inflation has fallen rapidly over the past year, and the ECB has signaled plans to cut rates in June. However, rising energy costs, stubbornly high services inflation, and ongoing geopolitical tensions that threaten trade disruption cloud the longer-term outlook.

Economists expect the bloc’s gross domestic product to have grown by just 0.2% in the first quarter compared to the previous year.

Progress on inflation is expected to have stalled, with consumer prices expected to have risen by 2.4% in April, matching the previous month amid rising energy costs.

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