Noreen Burke

Investing.com — This week’s inflation numbers will be closely watched, with Federal Reserve Chair Jerome Powell (Federal Reserve Vice Chair) and Vice Chair Lael Mindard appearing at the nomination hearings. They are due to appear on Tuesday and Wednesday, respectively. Many large banks will report on Friday, marking the start of the fourth quarter earnings seasons. After a turbulent start to 2022, volatility looks to be elevated. However, it remains under pressure. Here’s what you need to know to start your week.

1. Inflation data

Wednesday’s consumer price inflation data is expected to show headline CPI breaking above 7% year-on-year – rapidly approaching a four-decade high – with the core rate rising well above 5% year-over-year. A surge in producer price inflation data is expected the day after.

These inflation figures will be an indication of why the Federal Reserve might begin its rate rise cycle as soon as March. Adding to the argument for faster tightening is Friday’s jobs report which indicated that the labor market is at or near maximum employment.  

Although December saw a slowdown in job growth, the unemployment rate fell to 22 months lows and wages rose steadily.

Followed by Friday’s reports on industrial production, December retail sales, and inflation data on Friday will provide additional information.

2. Powell testimony

Fed Chair Jerome Powell, who is scheduled to testify before Senate Banking Committee on Tuesday to confirm his second four-year term at Fed Head. Fed Governor Lael brainard will be appearing before the committee just two days later to verify her nomination for vice-chair.

Many Fed officials, such as Esther George, James Bullard and Loretta Mester are expected to appear during the week.

In light of the Fed minutes last week, which suggested that officials might need to increase interest rates earlier than anticipated due to a tight job market and high inflation, their comments will be closely monitored.

3. Earnings

Investors will be able to see the fourth quarter results of several banks including JPMorgan Chase, NYSE:) as part of earnings season. Citigroup (NYSE: Wells Fargo (NYSE:) Prior to Friday’s market open

In 2021, the U.S. saw a huge profit increase of 27%. However, it is likely that companies won’t be able to post similar results for the fourth quarter.

Earnings for S&P 500 companies are expected to jump 22.3%, according to Refinitiv IBES – a solid increase, but still a slower pace than was seen in the first, second and third quarters.

Investors are eager to learn about inflation and whether or not companies think that the supply chain crunch which drove prices up last year is going away in the coming months. They also want forecasts for 2022.

4. Continue to experience volatility

The Fed may be ready to raise rates quicker than expected to fight rising inflation. Market volatility was evident in Week 1 of 2022.

Last week saw the Dow fall 0.3%, the S&P 500 decline 1.9% and the Nasdaq drop 4.5%, while the U.S. benchmark 10-year yield soared to a two-year high on Friday on the outlook for Fed rate hikes.

Jack Dollarhide of Longbow Asset Management Tulsa (Oklahoma) told Reuters that the sentiment had turned negative. “Right now the market feels nervous. We are ready to sell if we hear bad news.”

Investors are shifting away from technology-oriented growth shares to more value-oriented ones, believing that they will do better in an environment with high interest rates.

The risk-off attitude in the markets was also influenced by the Omicron version of coronavirus.

5. Bitcoin

Bitcoin fell sharply since the start to the new year. This was due to an increase in Bitcoin sales, fueled by worries about Fed policy.

After hitting an all-time record high of $69,000 last November, the market’s biggest cryptocurrency fell over 40%. The reason is that it was lower because there are expectations that the U.S. central banking will increase interest rates faster than they expected to combat rising inflation.

Investor appetite for higher-risk assets would be diminished if the Fed took a more aggressive policy.

Matthew Dibb (COO) of Stack Funds, a Singapore-based crypto platform said that there is a broad sentiment of risk in all markets as rate hikes and inflationary worries are top of speculators minds.

BTC liquidity has been very thin, and it is possible that the market will retreat to the mid-30s in the short-term.”

Bitcoin’s price was also lower after its global computing power dropped dramatically last week due to the downtime of Kazakhstan’s internet in a revolt that decimated its growing cryptocurrency mining business.

This report was contributed by Reuters