Market outlook for the week of 7th-11th September

There's a light week ahead, as is usually the case after the NFP, starting with bank holidays in the U.S. and Canada. On Tuesday, Japan will release its GDP q/q, while Australia will publish the Westpac consumer sentiment data.On Wednesday, the U.S. will release the ADP weekly employment change, with two simultaneous releases as the source skipped last week's data release. Thursday brings the ECB monetary policy announcement for the Eurozone, while the U.S. will release PPI m/m, unemployment claims and existing home sales. Finally, on Friday, the main focus will be on the highly anticipated U.S. inflation data, alongside the preliminary UoM consumer sentiment and preliminary UoM inflation expectations. The Fed will also release its monetary policy report, which is published twice a year. In Australia, the consumer sentiment rose 6.0% in August to 88.9. Despite the improvement, consumers remain pessimistic overall, with uncertainty surrounding the conflict in the Middle East which continues to weigh on sentiment. Rising inflation has also raised concerns that further rate hikes could be on the table, which would put additional pressure on households. At the same time, the correction in the housing market has intensified, adding another headwind for consumers. At this week’s meeting, the ECB is widely expected to raise its deposit rate by 25 bps to 2.50%, with the main arguments being a resilient Q3 activity, a still-elevated headline inflation and contained wage growth. While softer core and services inflation point to easing underlying price pressures, higher energy prices and the more hawkish July minutes are likely to keep policymakers cautious. Fuel prices are close to their 2022 peaks, while low gas storage levels leave the Eurozone exposed to further energy shocks, analysts from Wells Fargo said. The ECB is unlikely to react aggressively to an energy-only shock given the risks to growth. However, a broader rise in food prices could be more concerning if it pushes up inflation expectations. Beyond September, the policy path will depend on how persistent energy and food price pressures prove to be. In the U.S., the consensus for core CPI m/m is 0.2% vs. the prior 0.2%, while core CPI y/y is expected at 2.4% compared to 2.5% previously. CPI m/m is forecast at 0.4% vs. 0.1% last month, while CPI y/y is expected at 3.4%, unchanged from the prior reading. Following a stronger-than-expected jobs report, the market will now turn its attention to inflation. With expectations for a September rate hike rising, this week’s CPI report will be key. Core services inflation is expected to increase by around 0.2%, with firmer travel and lodging costs offsetting softer medical care and housing inflation. Overall, the report is expected to show that headline inflation is still being influenced by the Middle East conflict's impact on oil prices, but the core inflation remains relatively contained. This article was written by Gina Constantin at investinglive.com.