Markets are continuing to price in over six rate hikes from the Fed this year after the 40-year high in inflation and the strong monthly jobs report. There is also a high chance of a 50bp rate rise in March with some betting on an intra-meeting move, which would be the first hike between scheduled meetings since 1994. Fedspeak from numerous speakers over the coming weeks will be important to understand how much the balance of hawks and centrists is shifting within the FOMC.

The uncertainty caused by the Russia-Ukraine escalation will likely keep volatility elevated in the near-term. The VIX spiked higher on Friday on the mix of uncertain geopolitics and tightening monetary policy. We should see continued pressure on energy and oil prices, as well as a flight to safe havens like the dollar and US Treasuries, after the 10-year yield hit the psychological 2% level last week.

We get the usual mid-month barrage of UK data this week. The Bank of England appears on track to hike rates again at both its March and May meetings with EUR/GBP potentially targeting 0.83 and below if the figures come in stronger than expected.

Major risk events of the week

15 February 2022, Tuesday:

-UK Jobs: Consensus expects the jobless rate to tick up a tenth to 4.2% in December. The labour market has weathered the pandemic crisis well and conditions are now historically tight. Wage growth is forecast to remain high and add to inflationary pressures.

16 February 2022, Wednesday:

–UK CPI: Analysts see higher inflation with the annual headline rate expected at 5.5% and the core at 4.4%. The upward path of prices has surprised virtually everyone and is projected to advance even higher in time. A peak of 7% in April is forecast when the utility price hikes kick in.

-US Retail Sales: After December’s 1.9% drop, January headline growth is estimated at 1.8%. Omicron concerns temporarily slowed consumer activity, but the seasonal adjustment factor is set to turn sharply positive, indicating better overall sales. Any softer prints may raise fears about a flat GDP reading in the first quarter.

–FOMC Minutes: Focus will be on the 2022 path for interest rates and the size of the potential rate hike at the next meeting in March. We get more Fed officials speaking this week, following much recent chatter, which makes these minutes slightly stale.

17 February 2022, Thursday:

–Australia Jobs: Job gains seem likely, though there may be some volatility around the unemployment rate due to changes in the participation rate. Omicron during the summer holidays also points to increased uncertainty in the data.

18 February 2022, Friday:

–UK Retail Sales: The Omicron variant likely depressed consumer activity over most of January. Sales volume dropped in 3.7% in December and another contraction is possible. Base effects are expected to boost growth rates going forward.