The markets look likely to remain volatile with two competing forces battling each other. The new strain of coronavirus and any new scientific news is threatening to curtail economic activity and derail the growth story. Risks are skewed to the downside, with knowledge speculative and highly uncertain at present.

The new variant threat may complicate the Fed’s readiness to accelerate US policy tightening. Last week’s jolt of volatility underscores how investors are bracing themselves for Chair Powell’s more hawkish turn and faster pullback from its massive stimulus programme.

The most important data this week will be US consumer price inflation. This is looking less “transitory” than originally expected and should give the Fed further evidence if a faster taper is warranted. No changes are expected at the RBA and Bank of Canada central bank meetings, though their paths are distinctly different.

 Risk Event Calendar

Tuesday 07: The RBA meeting won’t bring any changes to policy settings. Focus should be on the wording of the decision statement and any assessment of the current data. Emphasis remains on the board’s patience regarding the timing of the first rate hike, with low wages and inflation allowing the bank to remain on hold. German industrial production and the ZEW business survey are expected to remain subdued with supply bottlenecks further hampered by rising infections and increased restrictions.  

Wednesday 08: The Bank of Canada meeting should be relatively quietafter deciding to end QE at its previous October get-together. Forward guidance for the timing of the first rate hike has already been moved to mid-2022. The outlook is evolving as forecast with the economy growing strongly.  

Friday 03: UK GDP for October is projected to increase 0.7% but paint a mixed picture. Services should continue to grow, while manufacturing activity is likely to fall due to supply chain issues. UK data has generally been positive, but the Omicron uncertainty may give the BoE a reason to put off a rate hike until the new year. US CPI is set to rise 0.7% m/m, with the core at 0.5%. This would likely take the annual reading close to 7% and the core above 5%. Notable increases in car, housing and energy prices are expected. Last month’s CPI had risen at the fastest pace in three decades and the persistent elevated readings are forcing markets to push for faster policy normalisation.