5 Things to Watch in the Markets Next Week

Next week investors will focus on Federal Reserve head Jerome Powell's speech about the future course of interest rates at the central bank's annual conference in Jackson Hole. With the rally in U.S. stocks already showing signs of slowing down, Powell's speech could shake up the markets. At the same time, the Eurozone and the UK PMI data are expected to point to a further slowdown in business activity. Here's what you should watch out for in the markets this week!

Jackson Hole

Investors are waiting for Powell's speech in Jackson Hole on Friday to get possible answers on how much U.S. interest rates could rise and how long they need to stay at highs to bring inflation back under control. The Fed has increased interest rates by 225 basis points since March to combat inflation, which is at its highest level in the last four decades. Fed policymakers reiterated that there is still a way to go in the fight against inflation, pulling back expectations for a peak in inflation and the so-called dove axis that has helped boost stocks. Last week's Fed minutes showed that while the scale of September's rate hike still remains, policymakers have so far shown little evidence that inflation pressures have eased. Powell will remind investors that officials still have time to decide how big that rate of increase should be, with an inflation report and another employment report coming ahead of the September meeting.  

US data

Next week's economic calendar includes July figures on personal income and spending, including the Fed's preferred measure of inflation: the personal consumption expenditures (KTH) price index. In the 12 months through June, the KTH price index rose 6.8%, the biggest increase since January 1982. Other data points include revised second-quarter GDP figures showing an initial contraction of 0.9%. There will also be reports on durable goods orders and PMI data for July.

Stocks

U.S. stocks have rallied since the start of the second half as company gains stronger-than-expected. There are hopes that even if the Fed raises rates to reduce inflation, it can avoid a recession in the economy. Markets rose despite Fed policymakers' expectations of a peak inflation and warnings from the central bank that the so-called dove axis could be premature. But there are signs that the rally is starting to slow down after all three of Wall Street's major indices ended lower last week. The S&P 500 fell about 1.2% and the Nasdaq 2.6%, both ending their four-week streak. The Dow lost about 0.2% during the week.

Euro Zone PMIs

The Eurozone will release PMI data for August on Tuesday, which will be closely watched after July's composite PMI fell below 50 and signaled a contraction in business activity. With energy prices continuing to rise in the euro area, PMI readings are expected to deteriorate again. The block will release consumer confidence data for August on Tuesday, which is expected to hit a new record level after falling to an all-time low in July. Market watchers are also waiting for the minutes of the European Central Bank's July meeting on Thursday to get any idea of how big a rate hike is expected in September, after officials raised rates by 0.5% last month and signaled a fresh increase at the next meeting.

UK PMIs

The UK will release PMI data on Tuesday, after the Bank of England warned earlier this month for a 15-month recession from the end of this year. Inflation in the UK reached 10.1% in July, its highest level since February 1982, and some economists predict it will reach 15% in the first quarter of next year due to rising energy and food costs. Data last week showed that wages lagged far behind price growth and consumer confidence fell to a record low.