Top tier US data comes thick and fast as markets move from the monthly non-farm payrolls report to the latest inflation figures next Thursday. Stock markets have eked out their first positive week in five and gold rallied sharply after the direction of travel in Friday’s job report pointed to a less aggressive Fed path of rate hikes. There are growing hopes that the economy is not expanding or contracting by too much and a soft landing can be achieved.

Attention now turns to Thursday’s CPI data to see if it confirms the ongoing downtrend in price pressures, where rampant inflation and subsequent rate hikes have hurt risk markets so badly over the past year or so. A further easing in the annual rate of inflation is expected by economists, with the headline estimate falling to 6.6% from 7.1%. This is still more than three times the Fed’s official 2% target.

But again, it’s the direction of travel which the markets are focusing on as a drop below 7% in December would be the first time in 13 months. The monthly rate is forecast to maintain its lowly pace of 0.1%, but the core print is seen ticking up one-tenth to 0.3%. That would leave the annual core rate at 5.7%, down from 6% in November.

Fedspeak from officials has been relatively hawkish so far this year as they continue to indicate they have more work to do in their fight against inflation. Rates need to go further into restrictive territory and stay there for longer appeared to be the message last week. Chair Powell’s speech may get some focus on Tuesday. But the softening wage growth seen in Friday’s jobs report soothed the market’s nerves over earnings amid more solid job gains and record low unemployment. The dollar gave back most of its gains on Friday’s sell-off. We are currently consolidating in a key support zone.

Major risk events of the week

10 January 2023, Tuesday:

– Fed Chair Powell Speech: Fed President Powell, along with other central bank chiefs, the BoE’s Governor Bailey and the Bank of Canada’s Macklem, will be speaking at the Riksbank international symposium on central bank independence in Stockholm. This is the first time Powell has spoken in the new year. Will he follow a more hawkish line like other FOMC officials?

12 January 2023, Thursday:

-US CPI: The last two headline inflation prints have come in way below expectations in contrast to the first half of last year which mostly saw above-consensus prints. Stronger than expected data will be a shock to markets. Softer data may encourage the FOMC to at least step down the pace of tightening once again at the next meeting, with a 25bp hike in February.

13 January 2023, Friday:

– UK GDP: Economists expect the monthly figure to remain broadly steady. November saw the reversal of the National Insurance hike, but this comes amid a backdrop of the cost-of-living crisis which is likely to have hit consumption. GBP is holding up relatively well so far, certainly against the dollar.