In the U.S. the trading week is shortened by the Martin Luther King Jr. Day holiday on Monday; however, investors still have a number of key indicators to watch with the main focus on U.S. earnings and retail sales, as investors are looking for signs of growth and profitability in the face of rising costs and economic uncertainty.

The economic calendar also includes important data on producer price inflation (PPI), existing home sales, and initial jobless claims, Fed’s Beige Book, as well as regional reports on manufacturing output. These indicators will give investors a sense of how the broader economy is faring after last year’s aggressive interest rate hikes.

At present the swaps market is pricing in a 90% chance of a 25-basis-point hike at the next meeting, followed by another one in March, with rates reaching a peak at 4.9%, and then 60% odds that the Fed will deliver at least one cut before the end of 2023. However, we still think that a rate cut will not arrive before 2024.

Reporting season is upon us and investors will also be closely monitoring the earnings reports from S&P 500 companies. According to Refinitiv data, year-over-year earnings for these companies are expected to have dropped 2.2% for the quarter. This would be the first decline since the third quarter of 2020, when companies were still grappling with the impact of the coronavirus pandemic.

As we move forward in the earnings season, a plethora of financial services companies will continue to unveil their quarterly results. The recent releases from the big U.S. banks mark the conclusion of earnings announcements from the major players in the industry. As such, attention now shifts to regional banks and other financial services entities and the remaining companies listed on the S&P 500, as investors eagerly await their earnings reports to gain further insight into the state of the economy.

On Wednesday data showed that producer prices in the U.S. dropped 0.5% from a month earlier in December 2022, following a revised 0.2% gain in November and compared with market expectations of a 0.1% fall. It was the largest monthly decline since April 2020, adding to signs that inflationary pressures are cooling.

Retail sales were also released on Wednesday showing a decline of 1.1% month-over-month in December 2022, following an upwardly revised 1% drop in November and worse than forecasts of a 0.8% fall, which is a sign of a weaker-than-expected holiday shopping and a slowdown in consumer spending amid high inflation and interest rates.