U.S. inflation data looms large, retail earnings ahead - what's moving markets

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U.S. inflation data looms large, retail earnings ahead - what's moving markets
Credit: © Reuters.

Investing.com -- U.S. futures pointed into the red on Monday, with markets gearing up for a week of major economic data that could help determine the path ahead for Federal Reserve interest rate policy. Meanwhile, big-box retailers like Home Depot (NYSE: HD ) and Target (NYSE: TGT ) are due to unveil their latest results in the coming days, as consumer sentiment darkens ahead of the key holiday shopping season.

1. Futures edge lower

U.S. stock futures inched broadly lower on Monday, as investors looked ahead to key inflation data later in the week and digested a decision by Moody's (NYSE: MCO ) Investor Service to downgrade its U.S. credit rating outlook.

By 04:41 ET (09:41 GMT), the Dow futures contract were mostly unchanged, S&P 500 futures had shed 9 points or 0.2%, and Nasdaq 100 futures fell by 52 points or 0.3%.

The main indices on Wall Street closed higher on Friday, rising to their second straight week of gains, while U.S. Treasury yields were little changed. Technology stocks outperformed, helping drive the tech-focused Nasdaq Composite up to its largest one-day percentage gain since May. The benchmark S&P 500 also finished at its highest closing level in a little under two months.

Sentiment was somewhat dented heading into the new trading week after Moody's lowered its outlook for the U.S.'s credit rating to "negative" from "stable," citing a jump in servicing costs and ongoing political "polarization." In an announcement on Friday, the agency also warned that America's fiscal deficits could "remain very large" as long as lawmakers remain at an impasse over a plan to stem a decline in debt affordability following a recent spike in Treasury yields.

2. Inflation data ahead

The October reading of the U.S. consumer price index (CPI), a major inflation gauge, is set to headline the economic calendar this week as investors attempt to calibrate their expectations for Federal Reserve interest rate policy.

On a monthly basis, the measure -- due out on Tuesday -- is expected to have risen 0.1% on a monthly basis. September's CPI rose 0.4% on a surprise surge in rental costs, although there were signs of moderation in underlying inflationary pressures. Year-on-year, consumer prices are seen increasing 3.3%, slowing from 3.7% in the prior month.

The so-called core figure, which strips out volatile items like food and energy, is projected to rise by 0.3% monthly and 4.1% annually .

Fed policymakers will likely be keeping close tabs on the data, particularly with a final rate decision of 2023 looming in December. Speaking at an event last week, Fed Chair Jerome Powell flagged that officials "are not confident" that borrowing costs are high enough to bring inflation back down to the U.S. central bank's 2% target.

3. Home Depot, Target among retail earnings this week

Several big-box retailers are set to unveil their latest quarterly results this week, with investors keen to see if they will provide any clues into the outlook for consumer spending.

Home Depot is due to report ahead of the open on Tuesday, followed by Target on Wednesday, while earnings from Walmart (NYSE: WMT ) and Macy’s (NYSE: M ) are scheduled to be released on Thursday.

These numbers from some of America's largest retail chains could provide fresh insight into a sense of pessimism that has been weighing on U.S. shoppers. Last week, data showed that U.S. consumer sentiment fell for a fourth consecutive month in November, while households' medium-term expectations for inflation jumped to their highest mark in over a dozen years.

Given the relatively bleak figures, any guidance from retail executives ahead of the all-important holiday shopping season will likely be in focus.

4. Biden and Xi to meet

U.S. President Joe Biden and his Chinese counterpart Xi Jinping will meet face-to-face on Wednesday during a summit in San Francisco, with relations between the two superpowers deeply strained.

According to White House National Security Adviser Jake Sullivan, Biden -- who is holding just his second in-person meeting with Xi since taking office in 2021 -- will aim in particular to re-establish ties between the U.S. and Chinese militaries.

"We need those lines of communication so that there aren't mistakes or miscalculations or miscommunication," Sullivan said in a television interview on Sunday.

A senior U.S. official cited by Reuters said that the discussions will also cover a range of global topics, from Taiwan and the Israel-Hamas conflict to the development of artificial intelligence and trade.

5. Oil slips

Oil prices retreated Monday, but hovered just under the flatline, amid persistent concerns over slowing global demand, especially in top crude importer China.

Markets are also warily watching out for signs of further potential policy tightening from the Fed, which could hit economic activity in the U.S., the world's biggest oil consumer.

By 04:41 ET, the U.S. crude futures traded 0.1% lower at $77.12 a barrel, while the Brent contract dropped 0.1% to $81.36 per barrel.

Both benchmarks posted gains on Friday, but still lost about 4% for the week, notching their third weekly losses for the first time since May.

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