Week Ahead: Will buy-the-dip help US stocks recover?
The dip buyers are starting to bite, helping benchmark US stock indexes pare losses from earlier in the week. At the time of writing, the futures contracts for all three main US benchmark indices (Dow, S&P 500, Nasdaq 100) are in the green, setting US stocks up for further gains before the weekend.
Still, they have a significant amount of ground to cover before these benchmark indices can fully erase all of its recent losses, especially for US tech stocks.
The Nasdaq 100 remains some 6.64% below its highest-ever closing price set on 16 April.
Given all the recent turmoil surrounding the US inflation outlook, it remains to be seen how markets will fare amidst some key events in the coming week:
Monday, May 17
- China industrial production, retail sales
- Fed speak: Fed Vice Chair Richard Clarida, Atlanta Fed President Raphael Bostic
Tuesday, May 18
- Fed speak: Dallas Fed President Robert Kaplan, Atlanta Fed President Raphael Bostic
- Eurozone GDP
Wednesday, May 19
- FOMC minutes
- Fed speak: St. Louis Fed President James Bullard, Atlanta Fed President Raphael Bostic
- US President Joe Biden speech
- CPI: Eurozone, UK
Thursday, May 20
- China loan prime rate
- ECB President Christine Lagarde speech
- US weekly jobless claims
Friday, May 21
- Fed speak: Atlanta Fed President Raphael Bostic, Dallas Fed President Robert Kaplan, Richmond Fed President Thomas Barkin
- PMIs for US, Eurozone, UK
- UK retail sales
Market expectations surrounding the US inflation trajectory is set to dominate market chatter once more. With that in mind, investors and traders are expected to pay close attention to the FOMC meeting minutes due mid-week.
Investors want to get more clues on the Fed’s view that US inflationary pressures are set to be “transitory”. How long exactly is “transitory”? In other words, how long will the Fed continue to tolerate higher inflation before easing up on its $120 billion in monthly asset purchases, which would then pave the way for a US rate hike?
Besides the FOMC minutes, the scheduled speeches and appearances by Fed officials may also offer more cues about their policy bias. Any commentary that suggests that the Fed is readying to adjust its policy settings sooner than thought, that could trigger another bout of volatility in markets.
Such jitters could potentially spur another selloff in US Treasuries, with the ensuing yields surge then encouraging the dollar index (DXY) to test its 100-day simple moving average (SMA) as a resistance level around the psychologically-important 91 region.