The first week of February has seen the American stock market experience minimal movementThe S&P 500 index remained largely unchanged, while both the Nasdaq and Dow Jones indices recorded a decline of approximately 0.5%. Market participants were busy digesting the latest financial reports from major tech companies, a robust US non-farm payroll report for January, and ongoing updates regarding the tariffs imposed by the US president.

This week, the global financial market is poised for significant developmentsInvestors are eager for the forthcoming release of the January Consumer Price Index (CPI) and Producer Price Index (PPI) data, which are expected to shed light on the current inflation trend in the United StatesFederal Reserve Chair Jerome Powell will be providing testimony at the congressional hearings, and markets are keen to gather insights that may hint at the timing of potential interest rate cutsMeanwhile, the president's tariff policies continue to play a critical role in shaping market dynamics; just last week, the president announced upcoming tariffs that will be imposed on several nations.

In the realm of corporate earnings, several high-profile companies are set to release their financial results, including McDonald's, Coca-Cola, Super Micro Computer, and Airbnb, all of which are critical players in their respective sectors.

Charles Schwab, in its market outlook, highlighted that the trade disruptions caused by tariffs and the resulting inflationary pressures might have negatively influenced market psychologyThe institution believes that while the recent decline in the 10-year US Treasury yield could signal a favorable environment for stocks, it is influenced by lower expectations for long-term economic growthThe exact duration and extent of the tariff increases, along with their economic implications, remain uncertain; this uncertainty has contributed to a resurgence in volatility over the last few weeks.

Inflation has once again become a focal point for investors, who are seeking clues that might impact expectations surrounding benchmark interest rates

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The January CPI data is scheduled for release on WednesdayWall Street economists anticipate that the CPI will rise by 2.9% year-over-year, statistically unchanged from prior readingsMeanwhile, the core CPI, which excludes food and energy prices, is expected to increase by 3.1%, down from the previous figure of 3.2%.

Simultaneously, the January PPI data will also be released on WednesdayEconomists predict that the PPI will show a year-over-year increase of 3.2%, a slight decrease from the earlier 3.3%. The core PPI is anticipated to rise by 3.3%, again lower than the prior reading of 3.5%.

In addition, the so-called “terrifying data” label has been affixed to the January retail sales figures, which are expected to be released on FridayEconomists forecast a month-over-month decline of 0.1% in retail sales, contrasted with the previous month’s increase of 0.4%.

If the upcoming inflation data indicates continuing persistent inflation, or if retail sales highlight a strong consumer support, market perceptions regarding the Federal Reserve's potential interest rate cuts may be further jeopardizedAnalysts have suggested that previous indications of persistent inflation have exacerbated speculation regarding the potential maintenance of rates in the coming monthsThe US money market has begun to price in a possible rate cut from the Fed around June or July but has not factored in the likelihood of two cuts throughout the year.

Even as last week's corporate earnings reports largely exceeded expectations, the stock market has struggled to find a clear direction, with macroeconomic factors continuing to induce volatilityOn Friday, stock prices dipped following the latest University of Michigan consumer sentiment survey, which revealed that respondents’ one-year inflation expectations reached their highest level since November 2023.

The data indicated that the one-year inflation expectation for February climbed sharply from 3.3% to 4.3%, marking the fifth time in 14 years that this expectation has surged by more than one percentage point in a single report

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The rise in inflation expectations was attributed in part to public perceptions that it may be too late to mitigate the negative impacts of tariff policies.

Powell's statements will take center stage as he attends hearings in both the Senate and House on Tuesday and Wednesday, providing testimony regarding the semi-annual monetary policy reportHis remarks could yield valuable insights into the Fed's trajectory concerning interest rates.

Market participants will closely scrutinize his views on the economic outlook, inflation targets, and monetary policy strategiesIn January, Powell had remarked that the Fed is not in a hurry to implement further rate cutsAnalysts suggest that Powell is likely to emphasize the resilience of the economy as a key reason for this measured approach toward rate reductionsWith the US economy demonstrating strength, Fed officials find themselves with sufficient time to assess the ramifications of the new government's changes in trade, immigration, and tax policies.

President Biden’s tariff decisions are also under scrutinyAfter announcing a delay on tariffs meant for Canada and Mexico, US stock markets experienced a rebounding effect following an initial declineHowever, the question remains regarding how the President will proceed with tariff policies, a topic of contention as concerns over their inflationary impact and subsequent ramifications on monetary policy loom large.

Last week, the President declared that retaliatory tariffs would be forthcoming this week targeting several nationsIn a dramatic twist, just an hour before the Asian markets opened on Monday, he threatened new tariffs of 25% on all steel and aluminum importsAdditionally, he is expected to hold a press conference on Tuesday or Wednesday to disclose further details regarding these retaliatory tariffs.

Rick Rieder, Chief Investment Officer for Global Fixed Income at BlackRock, noted in a report last Friday that two weak employment reports might be necessary to ignite discussions about the Fed resuming a cycle of rate cuts

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