The Week Ahead – US employment and inflation figures take centre stage

After coming off a fairly quiet, US holiday shortened week, traders will have a plethora of scheduled news to digest as the market continues to swing from risk-on to risk-off as it tries to predict what the Federal Reserves next moves will be.

Equity markets drifted up, the US dollar drifted down as a resilient US economy and a dovish Fed minutes saw market trading risk-on. This “loosening” of financial conditions will no doubt make the Fed unhappy as they battle to control inflation, so it wouldn’t be a surprise to see the Fed language become more aggressive over the coming week with three officials scheduled to speak.

With the market pricing in a 50bp hike from the Fed in a couple of weeks at 75% (25% for a 75bp hike) and terminal rate expectations fluctuating on any Fed speak or major figure we will probably see a fair bit of volatility in US equity and global FX markets as liquidity returns and markets reprice on any perceived clues.

The main risk events out of the US are the Feds preferred Core PCE inflation figure released on Thursday and the always closely watched Non-Farm Payrolls, released on Friday. Both of these play right into the Fed’s mandates of employment and inflation, figures outside expectation will see some extreme volatility in FX and equity markets.

Jerome Powell is also scheduled to speak on Wednesday, this originally wasn’t planned and was only a recent addition to the economic calendar which suggests it could be an interesting one.

For AUD and ASX 200 traders, Australia’s first newly created monthly CPI figure will be released on Wednesday (previously this figure was only released quarterly) This combined with a speech from Governor Lowe on Friday could see rates markets re-price with an RBA decision next week. With a 25bp hike at 69% chance at the moment, either of these events could see that change and some volatility in Aussie markets.

This week’s calendar below: