Key Events This Week: Stubbornly Elevated Us Inflation Could Lift Dollar, Drag Gold

Monday, October 11

• US bond markets closed
• IMF/World Bank annual meetings
• USD: Fed speak – Chicago Fed President Charles Evans

Tuesday, October 12

• AUD: Australia September business conditions and confidence
• GBP: UK August unemployment, September jobless claims
• EUR: Germany October ZEW survey expectations
• USD: Fed speak – Atlanta Fed President Raphael Bostic

Wednesday, October 13

• AUD: Australia October consumer confidence
• CNH: China September external trade
• EUR: Germany September CPI
• GBP: UK August industrial and manufacturing production
• EUR: Eurozone August industrial production
• Brent: OPEC monthly market report and IEA World Energy outlook
• USD: September FOMC minutes and CPI
• S&P 500: US earnings season kicks off

Thursday, October 14

AUD: Australia September unemployment, October consumer inflation expectations

• CNH: China September PPI and CPI
• JPY: Japan August industrial production
• USD: US weekly initial jobless claims
• US crude: EIA crude oil inventory report and IEA monthly market report

Friday, October 15

USD: US September retail sales, October empire manufacturing and consumer sentiment

The obsession over the US inflation picture continues this week, with markets expecting a month-on-month print of 0.3% while the year-on-year print is forecasted to be 5.3%. If so, both those figures would match the readings from August, which would suggest stubbornly high inflationary pressures in the world’s largest economy.

Such an inflation outlook could force the hand of the Federal Reserve into raising interest rates sooner than expected in order to prevent consumer prices from getting out of control.

Recall that at last month’s FOMC meeting, half of the committee have already penciled in a rate hike in 2022, with policymakers also signaling their intent to begin easing up on their asset purchases before 2021 is over.

Given such hawkish inclinations out of the Fed, it creates a supportive environment for the US dollar, while keeping gold prices suppressed. That’s why gold prices were unable to punch higher in the wake of last Friday’s disappointing US nonfarm payrolls figures. Despite the slower-than-expected hiring in the US, market participants are already preparing for the eventually of the Fed’s tapering. And the Fed’s tapering should extend the rebound in Treasury yields which should lift the greenback alongside, while heaping downward pressure on the zero-yielding bullion.

With all that in mind, if this week’s CPI exceeds markets’ forecasts, the same market scenario is expected to play out: yields and dollar rise, gold falls.

However, a lower-than-expected growth for the September CPI could see gold prices recover slightly, while the dollar could unwind from of its recent gains.

Oil to climb higher on bullish OPEC, IEA cues?

Surging oil prices have been a major contributor to the concerns over potentially out-of-control inflation in major economies. Oil bulls could be emboldened to push benchmark crude prices higher if the monthly market reports out of OPEC and the IEA this week point to market conditions tightening even further (not enough supply to meet global demand that’s rapidly recovering from the pandemic).

Oil prices climbing even higher would likely further stoke inflation fears, which could mean more support for the dollar, more downside for gold, and having a dampening effect on stocks.

Speaking of stocks, the US earnings season kicks off this week, with Wall Street titans such as JPMorgan, Bank of America, and Goldman Sachs due to release their respective 3Q results. While these financial reports could sway the individual stocks and others in the same industry, ultimately broader trends such as the Fed’s next policy move and the global inflation outlook should have a bigger say on how benchmark US stock indexes such as the Dow and the S&P 500 would fare this week.

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