Financial markets have kicked off the new year with some decent volatility and the first week may have given us a flavour of what we should expect will be the story going forward.
Here are the scheduled economic data releases and events that could trigger even more volatility in the coming days:
Monday, January 10
Tuesday, January 11
- AUD: Australia November external trade and retail sales
- USD: Fed Speak – Kansas City Fed President Esther George, St. Louis Fed President James Bullard
Wednesday, January 12
- CNH: China December CPI and PPI
- JPY: BOJ Governor Haruhiko Kuroda speech
- EUR: Eurozone November industrial production
- USD: US December CPI and Fed Beige Book
Thursday, January 13
- USD: US initial weekly jobless claims and December PPI
- USD: Fed Speak – Richmond Fed President Thomas Barking, Philadelphia Fed President Patrick Harker, Chicago Fed President Charles Evans
Friday, January 14
- CNH: China December external trade
- GBP: UK November industrial production and trade balance
- USD: US December retail sales, industrial production, and January consumer sentiment
- USD: New York Fed President John Williams speech
US CPI the must-watch data
Hot inflation will no doubt grab the headlines this week with the release of the latest US CPI figures for December on Wednesday. Numerous analysts expect a headline print above 7% with the usual suspects continuing to drive prices higher ie. shelter costs, wage inflation and vehicle prices.
With the labour market pretty much inline with the Fed’s maximum-employment goal, any surprises in the data could reinforce or reverse some of the year’s market momentum, depending on their direction. Also out of the US, the University of Michigan Sentiment survey and retail sales might attract some attention. The consumer inflation expectations part in the former will be key for economists, with all the market’s current attention on price pressures.
Pace of rising rates hits markets
A first rate hike by the Fed in March is now priced in at around 90% with a total of four 25bps moves for the whole of the year. It is not so much the level of where bond yields are, but the speed at which they are rising that has shocked some areas of the market. Equities, and tech stocks in particular, have taken a hit as investors rotate out of growth companies and into value stocks like financials, which generate cash flows now rather than yet-to-be proven cash flows.
This environment should be supportive for the dollar given that the Fed is now fully behind the more hawkish narrative and in lift-off mode. Rising real rates and the risk-off environment have so far cancelled each other out in EUR/USD this year.
Commodity and high yield FX should also be bid, but this might be easily undone if stock markets start to selloff more sharply than just a wobble.
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