World Week Ahead: Markets focus on the Fed and interest rates

(BusinessDesk) - Investors will pore over minutes from the latest Federal Open Market Committee meeting and a slew of speeches by US central bank policy makers this week to gauge if signs of accelerating inflation will prompt a speedier path of interest rate increases.

The minutes from the Fed's January meeting are slated for release on Wednesday. The Fed is widely expected to lift its target interest rate at its next two-day meeting in March and its policy makers have so far signalled they are eyeing a total of three hikes this year.

"Following the further increase in US fiscal stimulus and higher inflation readings, markets will be watching Fed communication carefully for signs that this is a concern, and potentially an imperative to quicken the pace of monetary tightening," National Australia Bank said in a note on Friday.

Fed officials scheduled to speak this week include Patrick Harker and Neel Kashkari on Wednesday, William Dudley and Raphael Bostic on Thursday, as well as Loretta Mester and John Williams on Friday.

Today US financial markets are closed for the President's Day holiday.

Home Depot and Walmart are among the US companies set to release their latest earnings in the coming days.

The latest economic data due this week include reports on PMI composite and existing home sales on Wednesday as well as weekly jobless claims, leading indicators and Kansas City Fed manufacturing index on Thursday.

Wall Street staged a recovery last week. The Dow Jones Industrial Average jumped 4.3 percent, the Standard & Poor's 500 Index also gained 4.3 percent and the Nasdaq Composite Index rallied 5.3 percent.

"As far as corrections go, while we're not out of the woods yet, it's starting to feel like the best possible one you can hope for: Short and sweet," Craig Birk, an executive vice president of portfolio management at Personal Capital, told Bloomberg. "All the basic economic fundamentals and earnings results still seem very solid."

On Friday, the Dow eked out a 0.08 percent gain, while the S&P 500 inched 0.04 percent higher. The Nasdaq, however, slipped 0.2 percent.

US Treasuries rose on Friday, pushing the yield on the 10-year note four basis points lower to 2.87 percent.

Nerves and volatility, while they have eased, are here to stay for a while longer.

Wall Street's fear gauge - the CBOE Volatility Index or the VIX - ended Friday 1.7 percent higher at 19.46. That's down from the high of 50.30 it reached two weeks earlier, though higher than it traded through most of 2017.

"Fear has come down dramatically but certainly not to the level of complacency seen pre-correction," Randy Frederick, vice president of trading and derivatives for Charles Schwab in Austin, Texas, told Reuters.

"VIX futures seem to indicate that the VIX could trend down from current levels to maybe as low as 15 over the next couple of months, but there are few, if any, signs we'll see 10 again any time soon," according to Frederick.

In Europe, the Stoxx 600 Index ended Friday with a 1.1 percent advance from the previous day's close.

Investors will eye the accounts of the European Central Bank's latest monetary policy meeting, due on Thursday.

"It may give hints as to when the bank will change its forward guidance," according to Capital Economics economist Stephen Brown in a note on Friday.

Also on tap are reports on the eurozone current account, due today; Germany's producer price index as well as eurozone ZEW economic sentiment and consumer confidence, due Tuesday; eurozone manufacturing and services PMIs, due Wednesday; Germany's IFO business climate, due Thursday; and eurozone consumer price index, due Friday.