Payrolls affecting markets with inflation in focus this week

Traders continue to react to the mixed Non-farm Payrolls report on Friday that hampers building expectation for a fourth rate hike by the Fed this year. However attention will turn back to US inflation this week, with the core CPI data, whilst Trump’s trade tariffs are still on investors’ minds. We consider the outlook for forex, equity indices and commodities markets.

Inflation definition

Once again I find myself writing about the impact that Donald Trump is having on financial markets, as irksome as it may be. Trump’s tariffs have brought almost widespread condemnation, they have resulted in the resignation of his chief economic advisor, whilst GOP officials have also urged the President to reconsider. Risk appetite has been thrown around by protectionist fears and subsequent prospective exemptions. Markets tend to go overboard on Trump expectations and the protectionist fears is another example of this that is still now being unwound as we come into this week. However there is still a trend of concern with regards to a President so myopic to the second round impact that tariffs will undoubtedly bring about. This is a trend that will damage the dollar over the medium to longer term and is something that plays into the argument that this administration does indeed see the benefits of a weaker dollar. Moving into the new week, US inflation is once more a key factor for traders. Even though the 5 year breakevens rates continue to climb to multi-year highs above 2.15%, we are yet to see any hard data that sustainably points towards inflation. The core PCE remains subdued, whilst February’s surprise jump in average hourly earnings unwound considerably in Friday’s Non-farm Payrolls report. Are we finally set to see CPI picking up this week? Any positive surprise would see the 10 year yield back towards 3.00% and the dollar stronger.