As markets still digest an enormous miss in Friday’s US jobs numbers, we look at what could impact majors in the week ahead. The calendar may be relatively light, but the US data is heavy-hitting and could be key for markets. US inflation and retail sales are in focus, whilst prelim Michigan Sentiment also needs to be watched. Aside from the data, there is also a clutch of Fed speakers slated. Their views on the US economic recovery could be key.  

  • US CPI inflation is set to jump again. With bond yields struggling from the NFP miss, this could spell bad news for USD.

  • US Retail Sales are expected to continue to grow and consumer sentiment is also improving.

  • Fed speakers have been urging caution for tapering asset purchases, Friday’s payrolls will firm this view.  

US inflation to jump further

April’s US consumer inflation (CPI) is announced at 1330BST on Wednesday. It is forecast to jump significantly:

  • Headline US CPI expected to rise to +3.6% (year on year) 

  • Core US CPI expected to rise to +2.3%. 

With the base effects of the huge decline in economic activity from the hit of pandemic lockdowns a year ago, this rise has been expected. 

  Chart/US Inflation Indicators

However, with a raft of sharp rises in commodity prices to factor in and trillions of dollars in fiscal stimulus, the inflationary forces are strong and could come in hot.

The issue is how this will impact bond yields and by extension, on the US dollar. Following the huge miss of expectations in the Non-farm Payrolls report on Friday Treasury yields may struggle to make any serious upside move.

However, if inflation shows any significant upside surprise then this could have an impact on “real” bond yields. Inflation (and expectations of inflation) is rising whilst bond yields remain anchored. This means that in “real” terms (i.e. after inflation is taken into account) bond yields are falling.

Chart/US 10 years Treasury yields

The chart shows that falling real yields is negative for USD.

Chart/ Falling real yields is negative for USD

The US consumer is spending

There are also two key consumer data points next week. US Retail Sales (Friday at 1330BST) are expected to show more strong monthly growth. After March’s enormous +9.8% growth (after $1400 of stimulus payments in the middle of the month), further growth of +1.0% is expected in April. 

Michigan Consumer Sentiment (prelim on Friday at 1500BST) for May is also expected to show continued recovery. With the economy increasingly opening up, the Consumer Confidence survey is rising sharply and Michigan Sentiment is likely to be following suit.  

Chart/Consumer Sentiment

The key question for both these data points is how risk appetite responds. A massive miss to Friday’s payrolls hit USD hard but was positive for risk (pushes back the potential for Fed tapering asset purchases). Despite this, we believe that strong US consumer data should be seen as risk positive and USD negative.

Fed speakers need to be watched too

Another key factor to watch is how Federal Reserve members react to the jobs data. This could add to the cautious side of the “cautious optimism” that many Fed speakers are reflecting upon.

There are six Fed speakers on the calendar this week:

  • Charles Evans (mild dove, 2021 voter) on Monday  

  • John Williams (mild dove, 2021 voter) on Tuesday

  • Lael Brainard (dove, 2021 voter) on Tuesday

  • Mary Daly (dove, 2021 voter) on Tuesday

  • Raphael Bostic (mild hawk, 2021 voter) on Tuesday

  • Richard Clarida (mild dove, 2021 voter) on Wednesday

Any of these speakers could move markets this week as they are all voters this year. However, of all of them, the standouts are Raphael Bostic, as he is the only real hawk speaking, and Clarida who holds similar views to chair Powell.