The coronavirus pandemic is like the creature in a horror movie. Just when you thought it was dead…

Feeding worries about economic growth this week have been unexpected spikes in coronavirus cases in China. When the world’s second-largest economy gets hit with adverse COVID statistics, the rest of the world gets a fever.

About 300,000 people found themselves under strict lockdown Tuesday in China’s steelmaking hub of Wugang in Henan province, as Beijing continued its ruthless anti-COVID policies. Authorities in several other regions, including Hong Kong, have taken similar measures. The moves are casting a shadow over the global economy.

Stocks closed lower Monday, in the wake of last week’s holiday-shortened winning streak in which the S&P 500 jumped 1.9%. The major U.S. indices performed yesterday as follows: the Dow Jones Industrial Average -0.52%; the S&P 500 -1.15%; the tech-heavy NASDAQ -2.28%; and the small-cap Russell 2000 -2.11%.

In pre-market futures trading Tuesday, stocks were extending their losses. All eyes are on the next consumer price index (CPI) reading, scheduled for release Wednesday.

We’re seeing signs that inflation might be peaking. We’ll know more on Wednesday, but leading inflation indicators have been trending lower in recent weeks. Commodity prices, including crude oil, copper, aluminum, and iron ore, are slipping as global economic growth sputters. The commodity index has declined by nearly 15% over the last month.

Investors are cautious so far this week, as we face a crowded docket of economic reports. The big news will be Wednesday’s June CPI report, with analysts expecting another torrid reading of close to 9%.

The data to watch will be core inflation that excludes volatile energy and food prices, two components that remain elevated largely due to the Russia-Ukraine war.

Inflation is indeed running hot, but headline and core inflation have been posting an ever-greater divergence. The latter is gradually easing, a good sign for future headline inflation reports

Read This Story: Is The Fed Fighting The Wrong War?

The Federal Reserve puts a lot of weight on core (rather than headline) inflation; the financial markets in turn move according to projections for the U.S. central bank’s monetary policy moves. It’s encouraging for stock market investors that crude oil and commodities prices have sharply declined so far in July.

Also scheduled for release, on Thursday, is the producer price index (PPI) for June. This gauge of wholesale prices is more of a leading indicator than CPI. Regardless, expect a volatile week in financial markets.

Coming up: corporate earnings

Second-quarter 2022 corporate earnings reports kick off this week, starting with the big banks on Thursday. I predict that most of Wall Street’s attention will be on profit margins, due to the rising costs of inputs. We’ll see how well companies are coping with inflation.

As of this writing, the S&P 500 is expected to report year-over-year earnings growth of 4.3% for Q2, according to research firm FactSet (see chart).

We’re already seeing some earnings surprises, which bodes well. Among the 18 S&P 500 companies that have reported actual earnings for Q2 2022 to date, 72% have reported earnings above the mean estimate. In aggregate, actual earnings reported by these 18 companies have exceeded estimated earnings by 3.5%.

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In this era of war, inflation and pandemic, corporate consolidation is the name of the game. Even the whisper of a “mega-merger” can hand investors enormous returns. My colleague Nathan Slaughter, chief investment strategist of Takeover Trader, just pinpointed a potential takeover deal that could dwarf them all.

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John Persinos is the editorial director of Investing Daily.

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