With the Federal Reserve going all-in with the hawkish language, traders will be watching a barrel-load of key US economic data this week for clues as to the likely course of action by the central bank in the months ahead. PCE inflation, PMI releases and the all-important nonfarm payrolls report mean this will be a busy week ahead. 

Inflation 

US CPI inflation hit 7.9% in February, the highest level for 40 years. Now the focus will be on this week’s PCE inflation report, which is the Fed’s preferred measure of inflation.  

Last month’s report covering the month of January showed the PCE price index increased 6.1 percent from one year ago, reflecting increases in both goods and services. Energy prices increased 25.9 percent while food prices increased 6.7 percent. Excluding food and energy, the PCE price index for January increased 5.2 percent from one year ago. 

Market pricing suggests the Fed could do two back-to-back 50bps hikes at the next two meetings. Recent rhetoric from several Fed officials indicate growing support for a more hawkish move. Jay Powell left the door open to 50bps hikes last week, saying inflation was much too high. The core PCE inflation number will help policymakers decide.

Jobs 

The jobs report has arguably taken on a little less significance of late, since we know the labour market is extremely tight and inflation is the main worry for the Fed. The last two reports have indicated very strong labour market growth at the start of the year and this trend is likely to Nevertheless, there is still a tendency for volatility around the release and traders will be paying extra close attention to the wage data for signs of a wage price spiral so feared by policymakers.  continue. 

Other data 

Market participants will also be watching for the ISM manufacturing PMI from the US, as well as the Chicago PMI. Ahead of the nonfarm payrolls report on Friday, we get the ADP jobs number, whilst JOLTS job openings are released on Tuesday. 

Ukraine

Oil markets and other commodities will continue to remain sensitive headlines from the Ukraine conflict. Peace talks have yielded little and increasing concerns about tightness in the physical market were evident last week with steep backwardation emerging again in the futures curve.

Major economic data