Top 5 things to watch in markets in the week ahead

Earnings from the big tech names and another round of inflation data are due in the coming week, as a rally in U.S. stocks appears to be running out of steam partially due to worries that interest rates are likely to remain higher for longer. Here’s what you need to know to start your week.

1. U.S. inflation figures

Investors also get another look at U.S. inflation data on Friday with the personal consumption expenditures (PCE) price index, the Federal Reserve’s favoured inflation gauge, which economists expect to remain elevated in March.

Recent data indicating that progress on taming inflation has stalled, along with strong labor market data, geopolitical tensions in the Middle East that have sparked a rise in oil prices, and comments from Fed officials including Chair Jerome Powell have prompted investors to dial back expectations on the timing of any rate cuts.

Other economic data for the week includes an initial estimate of first quarter GDP, which is expected to have moderated slightly from the previous quarter. Data on new home sales and initial jobless claims will also be released along with revised figures on consumer sentiment and inflation expectations.

2. Big tech earnings

Big tech earnings are due are due to start arriving in the coming days after a week which saw the S&P 500 and the Dow Jones Industrial Average register their largest weekly percentage losses since March 2023, and the Nasdaq post its largest weekly drop since November 2022.

While first-quarter reporting season is still in its early stages, expectations have dimmed. Analysts now see aggregate S&P 500 earnings growth of 2.9% year-on-year, down from the 5.1% estimate on April 1, according to LSEG data cited by Reuters.

Four of the so-called Magnificent Seven group of tech giants will report - electric vehicle maker Tesla (NASDAQ:TSLA) on Tuesday after the market closes, Facebook-parent Meta (NASDAQ:META) on Wednesday, followed by Microsoft (NASDAQ:MSFT) and Google-parent Alphabet (NASDAQ:GOOGL) on Thursday.

Big tech is crucial to the S&P 500 as these companies hold the largest weightings in the index.

3. Oil prices

Oil settled slightly higher on Friday, but posted a weekly decline, after Iran downplayed Israel's retaliatory drone strike on its soil, indicating that an escalation of hostilities in the Middle East might be avoided.

As oil's risk premium gradually unwound, prices fell around 3% last week. Both benchmarks posted their biggest weekly loss since February.

Investors, however, are not ruling out the possibility that Middle Eastern tensions will disrupt supply.

Meanwhile, reports Friday said the International Monetary Fund expects OPEC+ to begin increasing oil output from July.

OPEC+ members, led by Saudi Arabia and Russia, last month agreed to extend voluntary output cuts of 2.2 million barrels per day (bpd) until the end of June. That has helped keep oil prices elevated.

4. PMI data

Investors will be closely watching PMI data out of the Eurozone the U.S. and the UK on Tuesday for any signs that inflation, especially in the services sector, is returning.

The March U.S. PMI showed U.S. services industry growth slowed further last month, along with services inflation.

The PMI figures could also indicate that the Eurozone economy is rebounding after March PMI data showed activity stabilizing and services inflation easing, keeping the European Central Bank on track for a widely expected June rate cut.

5. BOJ meeting

Investors will be on the look-out for clues on timing of the next rate hike when the BOJ releases fresh quarterly growth and inflation forecasts at its policy meeting on Friday.

BOJ Governor Kazuo Ueda said on Friday the central bank "very likely" will raise interest rates if underlying inflation continues to go up and begin reducing its huge bond buying at some point in the future.

The remarks reinforced expectations the central bank will raise its short-term interest rate target from the current 0-0.1% range sometime this year.

The yen has been declining since the BOJ's decision last month to end eight years of negative interest rates, as markets focused on its dovish guidance signaling that borrowing costs will be stuck around zero for some time.