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That the U.S. Federal Reserve will hike rates this year is a no
brainer, surely? So the key question then is how fast will it
tighten policy given uncomfortably high inflation.
Cue Friday's non-farm payrolls report, which could help provide
an answer.
The latest U.S. jobs report takes on added significance after
minutes from the Fed's December meeting on Wednesday, showed
some policymakers want to move even quicker to tighten policy,
including by shrinking the Fed's $8 trillion-plus balance sheet.
Economists polled by Reuters forecast the U.S. economy created
400,000 new jobs last month versus 210,000 in November. Should
payrolls meet expectations, a whopping 6.5 million jobs would
have been created in 2021.
The data could trigger fresh volatility across world markets -
consider that rate-sensitive two-year U.S. bond yields are up
almost 15 bps this week and set for their biggest weekly jump
since late 2019. A bond market volatility gauge is creeping up
to its highest levels since March 2020.
A Reuters poll meanwhile shows currency analysts expect the
dollar to extend its dominance well into 2022 given the focus on
the Fed policy outlook.
Nearly two-thirds of 49 foreign exchange strategists polled by
Reuters between Jan. 4-6 said interest rate differentials would
dictate sentiment in major FX markets in the near term, with
only two concerned about new coronavirus variants.
Ahead of the payrolls data, the flash estimate of euro zone
inflation in December also has the potential to stir things up.
Data from Germany on Thursday shows inflation in Europe's
biggest economy remains high but may be peaking.
Asian shares meanwhile were on firmer ground, breaking two days
of losses. European and U.S. stock futures are also higher,
while oil prices were heading for their best week since
mid-December on supply worries amid escalating unrest in
Kazakhstan and outages in Libya.
Key developments that should provide more direction to markets
on Friday:
- Samsung Electronics Q4 profit jumps
- German exports rise, output falls slightly in November
- UK December construction PMI
- Euro area December flash CPI, November retail sales, final
December consumer confidence,
- US December nonfarm payrolls data, November consumer credit
- Fed's Daly and Bostic speak Graphic: Spotlight falls on U.S.
non-farm payrolls,
https://fingfx.thomsonreuters.com/
gfx/mkt/byprjmkxlpe/MBjan7.PNG
(Reporting by Dhara Ranasinghe; editing by Saikat Chatterjee)
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