Week ahead: Will inflation reignite Fed jitters? Markets brace for key data and earnings

• Fed Governor Christopher Waller warned inflation is becoming the key policy driver, suggesting the central bank's easing bias may need removal, pushing Treasury yields higher
• Deutsche Bank notes investors are increasingly pricing in future rate hikes rather than cuts, weighing on rate-sensitive growth stocks despite recent market record highs
• Dell earnings will be closely watched for AI infrastructure demand updates following Nvidia's results, while analysts suggest lower energy prices could support equities if disruption risks fade

Summary

Key Event: Markets face a holiday-shortened week centered on Thursday's core PCE inflation report, expected at 3.3% annually, which could influence Federal Reserve policy direction under Chair Kevin Warsh.

Federal Reserve Outlook: Fed Governor Christopher Waller recently delivered hawkish signals, warning inflation is again driving policy decisions and suggesting the Fed's easing bias may be removed. Deutsche Bank notes investors are increasingly pricing in potential rate hikes rather than cuts, pushing Treasury yields higher and pressuring growth stocks.

Market Sensitivity: Analysts note markets remain highly responsive to energy price movements. Nigel Green of deVere Group suggests lower yields combined with softer energy prices would support equities, particularly benefiting tech stocks whose valuations improve with lower bond yields. Industrials, airlines, transport, and consumer sectors could also rally if energy disruption concerns fade.

Major Earnings: Key reports expected from Marvell Technology, Salesforce, Costco, Dell Technologies, and Snowflake. Dell will be closely watched for AI infrastructure demand updates following Nvidia's recent results. Meta Platforms' annual meeting may provide insights on AI spending and capital returns.

Economic Data: Beyond PCE inflation, investors await new home sales and jobless claims data to assess whether higher rates are meaningfully slowing economic activity. Wells Fargo forecasts a 0.4% rise in the April PCE deflator and expects consumer spending to show strain from inflation and high borrowing costs.

Market Positioning: Markets remain caught between persistent inflation risks and hopes that easing geopolitical tensions could support a risk rally, setting up potential volatility across equities, currencies, gold, and crypto markets.