Market watchers will be looking ahead to a meeting between U.S. President Donald Trump and China’s President Xi Jinping this week amid hopes for a thaw in trade relations, even if it alters expectations for Federal Reserve rate cuts. A line-up of Fed speakers, as well as fresh economic data and earnings will also command investors’ attention. Here’s what you need to know to start your week.
1. G20 Meeting
Trump announced last week that he would hold an “extended meeting” with Xi on the sidelines of the G20 summit in Japan. The two-day summit gets underway on Friday. Negotiations between Washington and Beijing broke down in early May after Trump accused China of retreating from previous commitments, causing a market sell-off.
Trump then slapped 25% tariffs on $200 billion of Chinese imports and threatened to impose tariffs on another $325 billion of Chinese goods, a scenario that Goldman Sachs says could sink equity markets as much as 4%.
“The best the market can expect out of the G20 is a handshake and a commitment to resume talking,” said Paul Christopher, head of global market strategy at Wells Fargo Investment Institute in St. Louis, Missouri. This could be enough to pep up the trade-weary market while anything less could cause the market to nosedive.
2. Fed Speakers
Appearances this week by several Fed policymakers will be closely watched after the U.S. central bank indicated last week that it could cut interest rates to offset global economic uncertainties and subdued inflation. Fed Chairman Jerome Powell will discuss the economic outlook and monetary policy at the Council on Foreign Relations, in New York on Tuesday.
New York Fed head John Williams and St Louis Fed President James Bullard are both due to speak the same day. Bullard voted against the Fed’s decision to keep rates on hold last week, instead favoring a quarter percentage point rate cut. One uncertainty investors face is whether positive Trump-Xi talks could delay a Fed rate cut.
U.S. economic growth, while slowing, is strong enough that “the Fed can afford to wait a while” to monitor trade-talk progress, Wells Fargo’s Christopher said. But if investors have to weigh a trade de-escalation with the possibility of fewer-than-hoped-for rate cuts, they will likely recognize “that a trade deal is a more powerful boost to U.S. growth than Fed cuts,” said Manulife’s Donald.
3. U.S. Economic Data
Some key U.S. economic reports this week include the release of durable goods data on Wednesday along with figures on international trade. Investors will also get an update on the health of the U.S. housing market from reports on pending home sales, new home sales and the house price index.
The week will also bring the final reading on first-quarter gross domestic product, with the consensus forecast for an unrevised reading of 3.1%.
4. Euro Zone Inflation
Friday’s euro zone inflation data will tell whether European Central Bank President Mario Draghi was right to warn that more monetary easing would come unless prices started rising faster.
Inflation has undershot the ECB’s near 2% target since 2013. The rate was 1.2% in May. The bank is worried, but it is a dilemma shared by policymakers in many countries, not least the U.S. and Japan. But Draghi’s words have made a mark. A closely-tracked key market inflation gauge — the five-year, five-year break even forward — has shot up to 1.3%, having languished at record lows at around 1.12% ahead of Tuesday’s speech.
Economists say “real economy” indicators, wages, for instance, paint a less pessimistic inflation outlook, raising questions about whether Draghi’s reaction to market-based inflation measures is warranted.
5. Earnings to Watch
Homebuilder Lennar (NYSE:LEN) is due to report before the open on Tuesday, while KB Home (NYSE:KBH) is set to release its earnings report a day later.
The world’s largest package shipment company, FedEx (NYSE:FDX) will report Q4 earnings after the close on Tuesday, amid concerns about its business being hit by the lingering China-U.S. trade dispute and slowing global growth. On Thursday, Walgreens Boots Alliance (NASDAQ:WBA) is set to report ahead of the open, while sportswear powerhouse Nike (NYSE:NKE) will report after the close.
Constellation Brands (NYSE:STZ), the brewer of popular beer brand Corona, is set to report on Friday before the market open.