Investing.com -- After Friday's strong jobs report made it likely the Federal Reserve will delay interest rates cuts investors will be focusing on upcoming earnings and economic data to gauge the future path of monetary policy. China is to release what will be closely watched inflation data, oil prices look set to remain volatile and the Reserve Bank of Australia meets. Here’s what you need to know to start your week.

Earning season continues

Earnings season continues in high gear and results this week will help determine if the rally that has taken stocks to record highs can keep going.

The S&P 500 hit a fresh high on Friday after the jobs data, helped by the soaring shares of Facebook parent Meta Platforms (NASDAQ:META) and Amazon (NASDAQ:AMZN), which rose 20% and 8%, respectively, following their corporate results.

All three major U.S. stock indexes notched their fourth consecutive weekly gains.

While most of the big tech names have already reported, there is still a huge batch of S&P 500 companies due to report this week, including Eli Lilly (NYSE:LLY), Walt Disney (NYSE:DIS), ConocoPhillips (NYSE:COP) and PepsiCo (NASDAQ:PEP).

Investors will be paying attention to any insight companies give about 2024, with earnings expected to grow faster than in 2023.

U.S. data

The U.S. economic calendar is considerably quieter after a busy week which included the January jobs report and the Fed’s first meeting of the year.

The main data point to watch is Monday’s ISM services PMI for January with economists expecting activity in the sector to have picked up at the start of the year. The Labor Department is to release the weekly report on initial jobless claims on Thursday.

Investors will also get to hear from several Fed officials during the week including Atlanta Fed President Raphael Bostic, Cleveland Fed President Loretta Mester, Governor Adriana Kugler, Richmond Fed President Thomas Barkin and Governor Michelle Bowman.

Before that, Fed Chair Jerome Powell is to discuss the economy and inflation risks in an interview to be aired on CBS’s 60 Minutes on Sunday night.

Oil prices

Oil prices fell by about 2% on Friday and both benchmarks lost roughly 7% on the week as investors recalibrated expectations for a near term rate cut from the Fed, which could dampen crude demand.

But concerns over spiraling tensions in the Middle East look set to remain to the fore after the United States began retaliatory strikes targeting Iran-backed militants in Iraq and Syria late Friday following a drone attack in Jordan last weekend that killed three U.S. troops.

The U.S. and Britain also launched a fresh round of strikes against Houthi targets in Yemen late Saturday following repeated attacks on Red Sea shipping lanes, which are key for global energy flows.

It is the latest escalation in a conflict that has spread into the Middle East since Oct. 7, when the Palestinian militant group Hamas stormed Israel from the Gaza Strip, igniting a war that has drawn in an array of armed groups backed by Tehran.

China inflation data

China is to publish inflation data on Thursday which is expected to show that deflationary pressures have intensified, with economists expecting January’s consumer price index to come in at minus 0.5% versus minus 0.3% the prior month.

The world’s second largest economy has been dogged by persistently weak demand, a slowdown in the property sector and fragile investor sentiment.

Chinese markets have already had a brutal start to the year. The blue-chip index ended January down 6%, marking a record six-month losing streak.

As the Lunar New Year looms - ushering in the year of the dragon, traditionally the luckiest of the 12 animals in this zodiac - some are hoping the annual travel rush might be a shot in the arm for the economy.

RBA meeting

The RBA is expected to keep interest rates unchanged when it holds its first policy meeting of the year on Tuesday after slower than expected inflation in the fourth quarter prompted markets to bring forward expectations for rate cuts.

Australian consumer price inflation slowed to a two-year low in the fourth quarter, while a sharp deceleration in core inflation fueled bets for a rate cut in May or June.

The RBA has already raised interest rates by 425 basis points to a 12-year high of 4.35% since May 2022 to tame runaway prices. It also left the door open to further tightening if necessary to meet its annual inflation target of 2-3%.

All eyes will be on RBA Governor Michele Bullock as she holds her first post-policy meeting press conference.

--Reuters contributed to this report

Top 5 things to watch in markets in the week ahead

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By Rae Wee

SINGAPORE (Reuters) - The dollar rose to an eight-week high against its major peers on Monday as traders clawed back bets for aggressive rate cuts by the Federal Reserve this year in view of a still-resilient U.S. economy.

The yen as well as the Australian and New Zealand dollars meanwhile tumbled to two-month lows, while the euro similarly bottomed at a more than one-month trough of $1.07675 against a stronger greenback.

The dollar index peaked at 104.18, its highest since December.

The Fed repricing has come on the back of Friday's blockbuster U.S. jobs report that far exceeded market expectations, reinforcing Chair Jerome Powell's statement at the conclusion of the central bank's policy meeting last week that a March rate cut was unlikely.

"A one-two punch from Jay Powell's FOMC presser and a very strong nonfarm payrolls report have essentially closed the door on a March rate cut," said Chris Weston, head of research at Pepperstone.

Traders are pricing in just a 20% chance that the Fed could begin easing rates in March, as compared to a nearly 50% chance a week ago, according to the CME FedWatch tool. The odds for a cut in May have also lengthened.

In an interview with the CBS news show "60 Minutes" that aired Sunday night, Powell said the Fed can be "prudent" in deciding when to cut its benchmark interest rate, with a strong economy allowing central bankers time to build confidence inflation will continue to slow.

Fed funds futures now show roughly 137 basis points worth of easing priced in for the Fed this year, down from 150 bps at the end of last year.

The Japanese yen was last 0.15% lower at 148.58 per dollar, having hit a trough of 148.82 earlier in the session.

The Aussie slid 0.33% to $0.6490, while the kiwi lost 0.25% to last trade at $0.6050.

Sterling bottomed at $1.2600, its lowest since Jan. 17.

"The dollar is likely to hold on to its recent gains," said Carol Kong, a currency strategist at Commonwealth Bank of Australia (OTC:CMWAY) (CBA).

Treasury yields also jumped on expectations of higher-for-longer U.S. rates, with the two-year yield, which typically reflects near-term interest rate expectations, last up nearly seven bps at 4.4386%.

The benchmark 10-year yield rose five bps to 4.0829%.

Elsewhere, China's securities regulator vowed to prevent abnormal market fluctuation, after Chinese stocks plunged to five-year lows, but announced no specific measures. [.SS]

That did little to help the yuan, with the offshore yuan last marginally lower at 7.2182 per dollar, pressured by a stronger greenback.

It had fallen to a more than two-week low of 7.2225 per dollar earlier in the session.

"I doubt (the news) will materially support (the yuan) in the near term, unless we get more concrete details," said CBA's Kong.

"So far we've just seen speculation and some media reports talking about further support for the equity market or the property market. But we haven't really seen a lot of details on those easing measures from the Chinese government.

"So I think markets are still pretty doubtful about whether or not those reports will materialise."

SYDNEY (Reuters) - A senior U.S. state department official urged Papua New Guinea(PNG) to turn down China's offer of a potential security pact, warning the Pacific nation that any security guarantee with Beijing comes with consequences and costs.

"We've seen that the Chinese commitment in defence or investment comes with a high cost. That's what we'd say to PNG," United States Deputy Secretary of State Richard Verma told the Sydney Morning Herald in an interview published on Monday.

Papua New Guinea Foreign Minister Justin Tkachenko told Reuters last week that it was in early talks with China on a potential security deal. China has offered to assist PNG's police force with training, equipment and surveillance technology, Tkachenko said.

The U.S. and ally Australia for decades have seen the Pacific as their sphere of influence, and are seeking to deter the island nations from forming security ties with China, after Beijing signed a security pact with Solomon Islands in 2022.

Verma, in Australia last week after visiting the South Pacific, said it was a competition for influence in the resource-rich region, and that "we have to compete aggressively".

His comments came ahead of an address by PNG Prime Minister James Marape to the Australian parliament later this week. PNG has previously said Australia and the U.S. were its security partners, while China was an important economic partner.

"We would like to see people choose security arrangement or investment opportunities or advanced connectivity with countries that play by the rules, that live up to the international standards," Verma said.

"China has shown that it is not doing that. China has shown that it's not interested in the modern rules-based order."

He warned about the "false promise of authoritarian regimes" and said countries in investment arrangements with China have found that it can be a "debt trap".

"There are other options out there," Verma said.

CAIRO (Reuters) -Egypt's central bank raised its overnight interest rates on Thursday by 200 basis points (bps), a move some analysts said may indicate a currency devaluation is on the way.

The bank hiked the lending rate to 22.25% and the deposit rate to 21.25%, its Monetary Policy Committee said in a statement.

Most analysts did not expect a hike. The median forecast in a Reuters poll of 16 analysts was for the central bank to hold rates steady. Six analysts expected a hike of between 100 and 300 basis points.

"The hike is likely coming ahead of a EGP devaluation and the announcement of an expanded IMF deal," said Monica Malek of Abu Dhabi Commercial Bank.

Egypt has been in talks for the last two weeks with the International Monetary Fund to revive and expand a $3 billion loan agreement signed in December 2022.

IMF disbursements on the loan were put on hold last year after Egypt did not follow through on a pledge to let the Egyptian pound (EGP) respond to market forces and instead fixed it against the dollar in March.

Farouk Soussa of Goldman Sachs disagreed a devaluation was imminent. The rate hike "is the start of a process of policy tightening," he said. But that "will take some time and must be supported by enhanced FX liquidity."

The Egyptian pound, fixed at 30.85 to the dollar since March, has been trading on the black market as low as 71 pounds.

Egypt's already weak economy was hit by the Gaza crisis, which dampened tourism and decreased shipping through the Suez Canal, a major source of foreign currency.

The MPC said growth fell to 2.7% in the third quarter of 2023 from 2.9% in the second and was expected to continue softening through June.

By Rae Wee

SINGAPORE (Reuters) - The dollar fell broadly on Friday in a bout of positive risk sentiment following upbeat big tech earnings on Wall Street, while traders awaited U.S. jobs data due later in the day to gauge how soon the Federal Reserve could begin easing rates.

The closely watched nonfarm payrolls report later on Friday comes on the heels of the Fed's latest policy meeting where rates were kept steady as expected, though Chair Jerome Powell pushed back against market expectations of rate cuts in March.

Ahead of the release, the greenback dipped against a basket of currencies, extending a 0.5% fall in the previous session.

The dollar index was last at 103.02 and on track for its first weekly decline for the year.

The risk-on mood helped the Aussie tack on 0.17% to last trade at $0.6583, though it was on track to end the week only about 0.2% higher, as its gains were capped by a sharp slowdown in domestic inflation.

The New Zealand dollar rose 0.07% to $0.6149 and was on track for a weekly rise of nearly 1%, its best performance in over a month.

"If we have a relatively soft payrolls number... then I think you'd probably see the needle move a little bit further back, closer to 50-50" for March rate cut expectations, Ray Attrill, head of FX strategy at National Australia Bank (OTC:NABZY), said of Friday's U.S. jobs report.

"I think the dollar will be quite sensitive to that."

Market pricing now shows a 38% chance of a Fed cut in March, as compared to an over 70% chance a month ago, according to the CME FedWatch tool. A cut in May is almost fully priced in.

"We continue to expect three rate cuts to take place in 2024, with the first cut taking place mid-2024, (followed) by subsequent cuts each quarter," said Raf Choudhury, investment director of multi-asset at Abrdn.

"We do think the market pricing in five or more cuts as soon as March seems ambitious and have more confidence in the dot plots which signal three cuts this year."

Still, the prospect of lower U.S. rates have sent Treasury yields sliding, with the two-year yield, which typically reflects near-term interest rate expectations, last at 4.2086%. It has fallen roughly 15 basis points this week.

The benchmark 10-year yield, which has meanwhile tumbled nearly 30 bps for the week, last stood at 3.8840%.

Analysts said renewed jitters over regional U.S. banks this week also sparked a flight into the safe-haven Treasuries. Bond yields move inversely to prices. [US/]

In other currencies, the yen gained 0.1% to last stand at 146.29 per dollar. It was poised for a weekly gain of nearly 1.3%, its best week in over a month.

A summary of opinions from the Bank of Japan's (BOJ) January meeting out this week showed policymakers discussed the likelihood of a near-term exit from negative interest rates and possible scenarios for phasing out the bank's massive stimulus programme.

That highlighted a growing view within the board that conditions were falling in place to soon pull short-term interest rates out of negative territory, which would be Japan's first interest rate hike since 2007.

Elsewhere, sterling rose 0.09% to $1.2754.

The Bank of England (BoE) kept interest rates at a nearly 16-year high on Thursday but opened up the possibility of cutting them as inflation falls.

"The (Monetary Policy Committee) - following the Fed - kept the Bank Rate target at 5.25% and dropped the 'tightening' bias in favour of a neutral bias," said Thierry Wizman, Macquarie's global FX and rates strategist.

"But, also like the Fed's tone... there was a decidedly cautious aspect to the MPC's communications to counter the switch in the policy bias."

The euro edged 0.07% higher to $1.0879 and was eyeing a weekly gain of more than 0.25%.

Data on Thursday showed euro zone inflation eased as expected last month but underlying price pressures fell less than forecast, likely boosting the European Central Bank's argument that rate cuts should not be rushed.

WASHINGTON (Reuters) - U.S. construction spending increased more than expected in December amid a surge in single-family homebuilding, and further gains are likely as mortgage rates decline.

The Commerce Department said on Thursday that construction spending rose 0.9%. Data for November was revised higher to show construction spending advancing 0.9% instead of 0.4% as previously reported. Economists polled by Reuters had forecast construction spending gaining 0.5%.

Construction spending shot up 13.9% on a year-on-year basis in December. It increased 7.0% for all of 2023. Spending on private construction projects increased 0.7% in December after rising 1.1% in November. Investment in residential construction soared 1.4% after advancing 1.0% in the prior month.

Outlays on new single-family construction projects jumped 1.6%. Demand for new construction is being driven by a perennial shortage of previously owned homes on the market.

Single-family home building is likely to rise further this year amid lower borrowing costs.

The Federal Reserve left interest rates unchanged on Wednesday. Fed Chair Jerome Powell offered a sweeping endorsement of the economy's strength, telling reporters that interest rates had peaked and would move lower in coming months.

The U.S. central bank has raised its policy rate by 525 basis points since March 2022 to the current 5.25%-5.50% range.

The rate on the popular 30-year fixed-rate mortgage has tumbled from a 23-year high of 7.79% in late October and is hovering in the mid-6% range, according to data from mortgage finance agency Freddie Mac.

Outlays on multi-family housing projects gained 0.3% in December. With the rental vacancy rate near three-year highs and a large stock of multi-family housing in the pipeline, scope for growth this year is limited.

Outlays on private non-residential structures like factories fell 0.2%. Spending on manufacturing construction projects dipped 0.1% as the boost from a policy by the Biden administration to bring semiconductor manufacturing back to the United States fades.

Spending on public construction projects increased 1.3% after gaining 0.5% in November.

State and local government spending rose 0.9% while outlays on federal government projects surged 6.4%.

By Howard Schneider

WASHINGTON (Reuters) -U.S. worker productivity gains running well above the long-term average may help buttress the Federal Reserve's faith that inflation is contained and further open the door to interest rate cuts policymakers anticipate will start in coming months.

Output per worker, a key gauge of how fast the economy can grow without rising inflation, increased 3.2% in the last quarter of 2023, the third quarter of productivity gains above 3% in a series that averaged about 1% from 2010 through 2019.

Fed Chair Jerome Powell spoke at his Wednesday press conference about the advantages rising productivity holds for the Fed's inflation fight, offering the prospect of more jobs and stronger economic growth with less pressure on prices.

But while the productivity numbers may be more an explanation of why inflation has been falling as opposed to a signal about what comes next, Powell no longer says the economy needs to go through a period of sluggish, below-potential growth for the pace of price increases to decline from a level still described by the Fed as "elevated."

The need for weak growth to cool inflation had been a working premise of Fed policy for much of its fight against rising prices. Its disappearance from Powell's rhetoric points to some faith that output per worker will remain healthy, and unit-labor costs will stay muted. Beyond lowering inflation pressures, rising productivity leaves more room for wage gains since each worker hour is providing more goods and services.

"Whereas a year ago we were thinking that we needed to see some softening in economic activity that hasn't been the case...We don't look at it as a problem," Powell said. "I think at this point, we want to see strong growth, we want to see a strong labor market. We're not looking for a weaker labor market. We're looking for inflation to continue to come down as it has been coming down for the last six months."

'ELEVATED' FOR HOW LONG?

The Fed at its meeting this week finished a policy evolution that began last year, removing a presumption of further rate hikes in favor of a neutral stance and an acknowledgment that rates could fall once policymakers are more confident inflation will continue moving toward its target.

"The Committee does not expect it will be appropriate to reduce the target range until it has gained greater confidence that inflation is moving sustainably toward 2%," the Fed said in its statement.

Investors expect a first rate cut in May, but on the way there policymakers will have to make a judgment - and likely reflect it in public comments - that the pace of inflation is no longer elevated.

That may just be a matter of time. While the Personal Consumption Expenditures price index used by the Fed to set its target was last at 2.6% on a yearly basis, the eight-month pace since April annualizes to a below-target 1.9%.

Powell on Wednesday said he did not think there will be enough data in hand by the March 19-20 meeting to reduce rates. But by the April 30-May 1 meeting policymakers will have received a full suite of first-quarter data on consumer inflation, PCE, jobs, wages, and an estimate of economic growth for the first quarter of the year.

All will be watched as policymakers consider when to finally remove the word "elevated" from the description of inflation in their policy statement.

Also important are survey and market measures of inflation expectations, something policymakers feel need to remain consistent with the 2% target for them to trust that inflation will "settle" there, not just "tap" it, as Powell said.

While currently at 2.9%, the most recent University of Michigan survey of household inflation expectations for the next year is within the range seen before the pandemic, and Fed officials consider them largely consistent with their target. Officials also see market measures of inflation, such as the breakeven rates on Treasury Inflation Protected Securities, as well "anchored."

ACHIEVING 'GREATER CONFIDENCE'

Other data on the job market, like measures of layoffs, quit rates, and labor turnover, are near where they were before the pandemic.

"The labor market by many measures is at or nearing normal," Powell said, though wages were still "not quite back to where they would need to be in the longer run."

New hourly wage data for January will be released on Friday.

But after Powell noted how much recent disinflation hinged on actual declines in the prices of some goods, meaning future headline inflation could rise even if goods prices simply stay stable, analysts pointed to two longstanding inflation concerns as key to Fed confidence-building: housing and services.

Declines in housing inflation should be almost mechanical in coming months as easing market rents make their way into the inflation indexes. Services price increases may prove stickier and be the final hurdle to clear for officials to describe inflation as something other than elevated.

Wage growth still above a level Fed officials see compatible with 2% inflation could also come into play.

"There may be enough voices on the (Federal Open Market) Committee that remain concerned about services inflation - and shelter inflation in particular - and wage growth to keep the Fed on hold for longer," Bank of America analysts wrote. "We think achieving 'greater confidence' requires more evidence that services inflation is consistent with 2% outcomes in the event that goods price declines stop, and a further slowing in wage growth to 3.5%."

By Michael S. Derby

NEW YORK (Reuters) -Changes last week to a Federal Reserve lifeline for banks should not impair the facility's ability to provide liquidity to banks that still genuinely need the cash, and also have appeared to deter a steady rise in borrowing over recent months, market analysts believe.

That is because the facility, known as the Bank Term Funding Program, or BTFP, still offers fairly easy terms conditions to access it even as it now costs more to borrow from the central bank, the analysts said. That is important, since over recent days some regional Fed banks have run into challenges that have in turn stoked worries about the sector, thus raising questions whether the central bank was premature in tightening access to the BTFP.

Just over a week ago, the Fed raised the borrowing rate on the BTFP, an effort launched in March to provide easy cash to eligible banks amid the high-profile implosion of Silicon Valley Bank, which in turn had raised fears of broader banking sector stress.

The BFTP borrowing rate now matches the interest on reserves rate at 5.4%, representing around an immediate half-percentage-point rise in borrowing costs for those aiming to take on new BTFP loans. The Fed also affirmed the program would shut down as planned on March 11.

Raising the rate was widely viewed as a way to arrest a vexing rise in borrowing at the facility despite no apparent signs of bank stress. The change appears to have had some impact, with banks borrowing $165.2 billion from the facility as of Jan. 31, from $167.8 billion on Jan. 24.

By raising the rate, the Fed in theory closed off what had been an ability by banks to borrow cheap cash from the Fed and lend at higher rates in private markets or even to the Fed itself. The BTFP borrowing rate is now higher than the rate seen on many private money market securities and matches what the Fed pays banks to park reserves at the central bank.

Borrowing at the BTFP has "probably peaked" given the new terms and the retreat in usage was "what you would have expected," said Steven Kelly, associate director of research at the Yale School of Management's Program on Financial Stability.

Raising the rate “was the right move,” said Joseph Wang, chief investment officer at Monetary Macro. Moving the BTFP rate to the interest on reserve rate “weeds out the opportunistic borrowing and leaves those that actually need the cash.”

Derek Tang, an analyst with forecasting firm LH Meyer, also believes the facility remains in a good place to provide support, noting banks have been using it “not because of the lower BTFP rate…but because BTFP was so much looser with collateral valuation and margin, and that hasn't changed.”

Despite jittery markets, Fed officials do not themselves appear concerned about the health of the banks. That confidence appeared to embolden policy makers to take out of the Federal Open Market Committee policy statement released Wednesday language describing the banks as "sound and resilient," words first employed in the March 2023 statement and carried forward until the latest FOMC gathering.

(Reuters) - Goldman Sachs pushed back its expectation of the U.S. Federal Reserve starting interest rate cuts to May from March, after Chair Jerome Powell's signaled delays in cuts.

The Wall Street brokerage, in a note dated Wednesday, maintained its forecast of five 25 basis points rate cuts this year and expects four consecutive cuts starting in May through September and a final cut in December.

The Fed kept its policy rate unchanged on Wednesday at 5.25%-5.50%.

Chair Jerome Powell declined to declare victory in the U.S. central bank's two-year inflation fight, vouch that it had achieved a sought-after "soft landing," or promise that rate cuts would come as soon as the Fed's March 19-20 meeting.

By Idrees Ali, Alexandra Alper and Michael Martina

WASHINGTON (Reuters) -The United States on Wednesday added more than a dozen Chinese companies to a list created by the Defense Department to highlight firms it says are allegedly working with Beijing's military, as part of a broader effort to keep American technology from aiding China.

New additions to the list, first reported by Reuters, were posted on the Department of Defense website and include memory chip maker YMTC, artificial intelligence company Megvii, lidar maker Hesai Technology and tech company NetPosa.

Amid strained ties between the world's two biggest economies, the updated list is one of numerous actions Washington has taken in recent years to highlight and restrict Chinese companies that is says may strengthen Beijing's military.

A spokesperson for the Chinese embassy in Washington said China opposed the move and called it an abuse of state power, adding that it ran counter to the U.S.'s "alleged commitment to market competition and international fair trade."

Hesai Group said it does not sell products to any military in any country and it does not have ties with any military. The company said it was disappointed to be added to the list.

YMTC, and Megvii did not immediately respond to requests for comment.

While being placed on the list doesn't involve immediate bans, it can be a blow to designated companies' reputations and represents a stark warning to U.S. entities and companies about the risks of conducting business with them. It could also add pressure on the Treasury Department to sanction the companies.

In addition, the 2024 National Defense Authorization Act added some teeth to the "Section 1260H" list, prohibiting the Defense Department under Section 805 of the law in coming years from contracting with any of the designated companies.

"The Defense Department's updated 1260H list underscores China's unwavering commitment to its military-civil fusion strategy," said Craig Singleton, a senior fellow at the Foundation for Defense of Democracies.

"Being listed on 1260H poses major reputational risks to Chinese companies," he added, noting that some Chinese firms have tried to be removed from the list.

Other firms added on Wednesday include China Three Gorges Corp, China Construction Technology Co and Yitu Network Technology, as well as publicly traded companies Chengdu JOUAV Automation Tech Co, Chengdu M&S Electronics Technology Co, Guizhou Aviation Technical Development Co, and ShenZhen Consys Science & Technology Co.

They join previously listed aviation company AVIC, BGI Genomics Co, China Mobile (NYSE:CHL), energy company CNOOC (NYSE:CEO) and China Railway Construction Corp.

Separately on Wednesday, senior U.S. officials, including FBI Director Christopher Wray, warned that hackers linked to China's government are preparing to cause "real-world harm" by targeting critical U.S. infrastructure, such as water treatment plants, the electric grid, oil and natural gas pipelines, and transportation hubs.