Top 5 Things to Watch in Markets in the Week Ahead By

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Author: Noreen Burke — U.S. inflation data on Thursday could provide insight into when the Federal Reserve may begin to slow the pace of interest rate hikes. The focus will also be on the outcome of the US mid-term elections on Tuesday, where control of Congress is at stake. China to release trade and inflation data as Beijing’s zero-covid policy continues to wreak economic havoc. Meanwhile, the UK will release GDP data on Friday, which is expected to show the economy has entered recession. Here’s what you need to know to start your week.

  1. US inflation data

The US will release inflation data for October on Thursday, as market watchers look for signs that price pressures are cooling after a series of big interest rate hikes by the Fed.

Fed President Jerome Powell said last week that policymakers were likely to take rates higher than expected in their bid to rein in rising inflation, so a worse-than-expected reading would likely reinforce expectations that the Fed will continue on its hawkish path.

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But a cooler-than-expected reading could see markets become more focused on the greater likelihood of a recession.

Economists expect the annual inflation rate to reach , and the monthly inflation rate to rise by .

  1. Mid-term elections in the USA

The U.S. is gearing up for midterm elections on Tuesday in which control of Congress and President Joe Biden’s agenda are at stake for the remaining two years of his term.

Republicans have been leading in the polls and many analysts believe the likely result will be a divided government, with the GOP in control of the House and possibly the Senate for the second half of Biden’s term.

Democrats’ electoral hopes have been dashed by voters’ concerns about high inflation, and Biden’s public approval rating has remained below 50% for more than a year, down from 40% in a recent Reuters/Ipsos poll.

  1. Actions

Wall Street rallied on Friday to close out a soft week, but struggling stocks will be tested in the coming days with a double whammy of inflation data and US midterms.

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Despite Friday’s gains, it fell 1.39% for the week to snap a four-week winning streak, down 3.34% for the week and 5.65%, its biggest weekly percentage drop since January.

Inflation data has led to huge market moves this year, as persistently high readings have forced investors to raise expectations for the Fed.

Analysts say the surprise Democratic victory could fuel concerns about higher fiscal spending and the outlook for inflation.

According to Reuters data, U.S. stocks have performed better during periods of divided government, with the S&P 500 averaging an annual return of 14% in a divided Congress and 13% in a Republican-controlled Congress under a Democratic president, compared with 10% when it was controlled by Democrats and the presidency and Congress.

  1. Data on China

Chinese and Hong Kong stocks surged on Friday amid speculation that Beijing could soon ease its strict zero-tolerance measures against the COVID-19 pandemic, but officials said on Saturday that the country was sticking to its policies.

China will release data on , and next week, which is expected to point to continued weakness in the world’s second-largest economy as COVID-19 dampens demand.

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Beijing is also due to release data on foreign exchange reserves, which are depleting as authorities seek to strengthen the yuan, which is on track for its worst year since 1994.

Falling for eight months in a row, China’s foreign exchange reserves are hovering around a psychological level of $3 trillion amid broad-based dollar strength since the Fed began raising rates in March.

  1. UK GDP

Britain will release preliminary data on third-quarter growth on Friday, which is expected to show the economy shrank in the three months to September.

Last Thursday, the Bank of England tried hard to deal with the risks of an inflation rate above 10% and warned of a long recession.

The BoE predicts that inflation will hit a 40-year high of around 11% during the current quarter, but that Britain has already entered a recession that could potentially last for two years – longer than during the 2008-09 financial crisis.

— Reuters contributed to this report


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