By Noreen Burke
Investing.com — The standoff over the U.S. debt ceiling looks likely to loom large over financial markets as earnings season continues. Markets will get an update on U.S. fourth quarter growth which is expected to remain solid despite more recent signs of a slowdown. The Eurozone is to release PMI data while inflation data from Japan will also be closely watched. Here’s what you need to know to start your week.
- Debt ceiling standoff
The U.S. government hit its $31.4 trillion borrowing limit on Thursday amid a row between hardline Republicans and President Joe Biden’s Democrats over raising the country’s debt ceiling.
House Republicans want cuts to government spending before they will approve a higher ceiling; a similar demand in 2011 prompted S&P to cut the U.S. credit rating for the first time and caused chaos in financial markets.
The high-stakes deadlock is widely expected to last for months and could come down to the last minute as each side tests the other ahead of June – the date beyond which the Treasury will likely have exhausted emergency maneuvers to stave off default.
“From both an economic and a financial perspective, a failure to raise the debt ceiling would be an unmitigated disaster,” said David Kelly, Chief Global Strategist for JPMorgan Chase & Co funds.
- Tech earnings
Earnings results in the coming week will test the recent bounce in technology stocks amid questions over whether megacap companies can increase revenue and profits while cutting costs, as the U.S. economy shows signs of a slowdown and a possible recession.
Microsoft (NASDAQ:), the second biggest U.S. company by market value, reports on Tuesday followed by Elon Musk’s Tesla (NASDAQ:) on Wednesday, and Intel (NASDAQ:) on Thursday.
Earnings season has had a lukewarm start. companies are expected to post an overall 2.9% drop in fourth quarter earnings versus the year-ago period, according to Refinitiv data. compared with a 1.6% decline in the beginning of the year.
Alphabet (NASDAQ:) said Friday it is cutting about 12,000 jobs, or 6% of its workforce, the latest tech giant to announce layoffs. Microsoft on Wednesday said it would eliminate 10,000 jobs while Amazon (NASDAQ:) started notifying employees of its own 18,000-person job cuts.
- U.S. economic data
The U.S. is to publish a first estimate of fourth quarter gross domestic product on Thursday with analysts expecting the economy to have expanded by an annualized , after 3.2% in the third quarter.
While this appears strong, more recent economic data have pointed to the economy losing momentum at the end of 2022 – retail sales fell by 1% or more in the last two months, industrial production declined for the past three and residential construction has posted six straight monthly declines.
GDP is expected to weaken in the coming quarters as the Federal Reserve’s aggressive continue to hit demand.
The economic calendar also includes data on , and on Thursday and the on Friday.
Several European Central Bank officials are due to make appearances before policymakers enter their traditional pre-policy meeting blackout period on Thursday. The ECB’s next policy meeting is on Feb. 2.
ECB President , who last week pushed back against market bets that it would slow the pace of rate hikes given recent falls in inflation, is scheduled to make two appearances.
Meanwhile, Eurozone data may give further indications of the health of the economy.
The bloc is to release flash PMI data on Tuesday that is expected to tick higher, while the closely watched German on Wednesday is expected to improve for a second month.
- Inflation watch
Japan is to release consumer price inflation data for the region Friday that will be closely watched after the Bank of Japan last week defied market expectations for a more hawkish policy shift when it maintained the rate of yield curve control.
Japanese inflation is running at a four-decade high and is double the BOJ’s 2% target but the BOJ is pushing back against market bets that the end of its long-standing, ultra-loose monetary policy is near.
Meanwhile, and are both due to release inflation data on Wednesday as the Reserve Bank of Australia contemplates whether it’s time to pause rate hikes and the Reserve Bank of New Zealand considers how much more to tighten monetary policy.
–Reuters contributed to this report