Welcome back from the long weekend (for some of you). Investors certainly deserved a break from the headline-filled mania of recent weeks. But it's time to return to reality — one where market jitters are unlikely to fade anytime soon.
That's because several questions remain front and center. Most importantly: When will the Fed's hiking cycle draw to a close? Last week's U.S. jobs number could pave the way for another rate hike in May but contains clear signs of a slowing economy. Indeed, last week's dismal ISM manufacturing reading and weak ADP jobless claims data paint a bleaker economic picture that many investors think will prompt rate cuts this year — even as policymakers adamantly push back against that notion.
Against that backdrop, the main event this week will be the U.S. consumer price index release on Wednesday. Economists polled by Reuters expect an acceleration to 5.6% on a yearly basis and a 0.4% monthly gain for core inflation, which excludes the volatile food and energy components. At those levels, inflation remains the Fed's biggest problem.
Or does it? The dust has seemingly settled on recent weeks' banking turmoil, but the potential for more drama looms. That means financial stability will need to factor into the Fed's policy calculus as well. We'll likely get more clues on the health of the financial sector when the mega banks kick off what's expected to be a grim U.S. earnings season on Friday.
For now, a positive start for Asian futures is helping ease investors back from the holidays. Asian stocks are pointing to a mixed open, while U.S. futures are also ticking higher after stock markets were closed on Good Friday. Most of Europe will enjoy a four-day weekend and remain closed for Easter Monday.
