Markets Face Rocky Week Amid Earnings and Inflation Concerns

Strategic Insights -

The upcoming week promises to be a turbulent one, with Chinese authorities potentially taking a more drastic approach to curbing economic growth, and a slew of earnings releases from major US corporations, including Apple, Goldman Sachs, and IBM, set to hit the markets. While investors seem increasingly risk-tolerant, with the Chicago Board of Exchange's Volatility Index dipping below 15, some experts warn of potential land mines in the form of surging commodity prices. Meanwhile, concerns over inflation in China and the US have sparked differing views on the best course of action to manage growth.

Key Takeaways:

  • The Chinese economy continues to expand, with the latest gross domestic product reports showing growth rates above expectations, prompting concerns about the country's inflation rate, which rose to 5.4% in the year to March, the fastest since July 2008.
  • The earnings season for major US corporations has been somewhat less than stellar, with investors remaining calm despite the potential for disruptions to the market.
  • The Chicago Board of Exchange's Volatility Index has dipped below 15, its lowest level since mid-2007, suggesting a relatively calm market environment, but experts warn of potential risks.
  • The US Federal Reserve's core inflation rate, which excludes food and energy, barely edged 0.1% higher last month, reinforcing the case for leaving interest rates at their current low levels.
  • The divergence in approaches to managing growth between China and the US is expected to widen, with China's central bank potentially taking a more aggressive stance to curb inflation.

Statistics:

  • The Chinese inflation rate rose to 5.4% in the year to March, the fastest since July 2008.
  • The Chicago Board of Exchange's Volatility Index dipped below 15, its lowest level since mid-2007.
  • The US Federal Reserve's core inflation rate: 1.2% year-over-year.
  • The current US federal funds rate: 0.25%.
  • The total value of the US Federal Reserve's current $US600 billion bond buying program.

Sources:

  • BusinessDesk - "World Week Ahead: Earnings and inflation"
  • Reuters - Mike Gibbs, managing director and chief market strategist at Morgan Keegan
  • Bloomberg - Russ Koesterich, an investment strategist at BlackRock Inc.
  • Federal Reserve - core inflation rate and federal funds rate