Following a rather volatile week, the markets will likely continue playing to the Trump election victory tune. However, as the news fades, the focus will now shift back, at least temporarily to the economic data. Inflation once again is the main theme this week with US, UK, Eurozone, and Canada due to the monthly inflation data while Fed Chair Janet Yellen and ECB President Mario Draghi’s speeches will be under the scanner.
Volatility is likely to continue this week
The markets fell then bounced back sharply but to think that it is a done deal and that all is well with the risk sentiment is being short sighted. The current volatility in the markets is perhaps a mere reflection of the uncertainty that is likely to continue. While president elect Trump’s speech offered some solace alongside other leaders pledging their support, the markets remain acutely tuned to any rhetoric from the next US president.
US Inflation Report
Next week, the US CPI report, due on Thursday will be of importance, coming at a time where the markets are doing the flip-flop on the prospects of a December rate hike. Initially after the election results, the markets remained doubtful of a Fed rate hike, but prospects picked up thereafter as over the week, Fed members such as Williams and Bullard drove home the point that the Fed rate hike narrative was still alive.
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US Consumer Price Index y/y: 1.5%, September, 2016
This week’s inflation figures will more likely cement the view. Headline inflation in the US jumped 0.3% in September, and the forecasts point to a 0.4% increase in October. This would bring the yearly inflation rate to 1.6% and if data comes out as expected, it would confirm the highest inflation rate since October of 2014. The basis for higher inflation comes on expectations of higher energy prices. Excluding the volatile components, core inflation is expected to rise 0.2% during October, slightly higher from 0.1% previously.
