LIVE MARKETS-All hail king data
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ALL HAIL KING DATA (1220 GMT)
Fed officials say they're going to hike rates to more than 5% and. Traders, frankly, don't believe them, and expect cuts this year.
That means data - such as Friday's, due at 1330 GMT - will decide who wins the tug of war.
"If the labour market remains tight... then the Fed is going to be right and the market is going to have to capitulate," says Jane Foley of Rabobank.
"If, on the other hand, the economy and the labour market in particular does loosen a bit faster, then the market is going to carry on believing that they could get the interest rate cuts."
Investors are even paying attention to inflation data in Japan for the first time in many years, as the Bank of Japanits ultra-loose monetary policy.
"You to be basing your trading decisions largely on headlines," says James Malcolm, head of FX strategy at UBS.
"Things like the wage ... the Tokyo CPI print week, obviously the BOJ decision on the 18th. These are the kinds of data points which are relevant."
BOND YIELDS MISDIRECTION (1028 GMT)
Bund yields lost as much as 30 basis points in three sessions, before yesterday’s slight increase, but optimism over fading inflation might be misplaced.
Both risky stocks and safe-haven bonds benefitted from hopes that central banks will have an easier job tackling inflation and could tighten less their monetary policy.
However, there are market participants who beg to differ.
“We think the mostly energy-related drop in inflation in December is a red herring,” ING analysts said. “Whilst helpful at the margin, we think core inflation should be a better predictor of European Central Bank policy.”
“This drop in yields has been as sudden and relentless as the rise into year-end,” they added. “Swaption implied volatility is down since its September peak but there are signs so far that 2023 will prove a calmer year.”
“One-offs like the German gas payment, as well as slumping French petrol prices have driven the CPI surprises, but look set to reverse again in January,” says Michael Leister, head of rates & credit research at Commerzbank.
“In addition, core inflation rates - which the ECB keeps on stressing are key - remain elevated, reducing the odds for less hawkish official communication,” he adds.
STOXX SET FOR BIGGEST WEEKLY GAIN IN 2 MONTHS (0845 GMT)
The pan European STOXX 600 .STOXX index started the year with a bang and is set for its best weekly gain since mid-November, having risen more than 3%. The index was treading water on Friday, however, ahead of data on euro zone inflation and U.S. jobs.
Euro zonefigures are due at 1000 GMT.
In thin trading due to bank holidays in some European countries including Italy, Spain and Sweden, the STOXX 600 was little changed on Friday. The oil and gas sector .SXEP was up 0.6%, supported by SHEL.L shares.
Europe's largest oil and gas companyfrom its liquefied gas trading operations are likely to have been significantly higher in the fourth quarter of last year despite a sharp output drop owing to plant outages.
In the UK, CKN.L shares rose around 6% after the company's upbeat full year outlook.
RELENTLESS (0859 GMT)
Not yet the end of the first trading week of the year and festivity is giving way to familiar tension.
Ukraine hasRussia's order for a ceasefire over Orthodox Christmas as a trick. No compromise is forthcoming, either, on Capitol Hill, with at installing Kevin McCarthy as House speaker underscoring dysfunction there.
The Fed is at loggerheads with markets betting on rate cuts by the end of the year, and Asia's bullishness about a recovery in China is increasingly at odds with global sentiment.
The MSCI Asia ex-Japan index .MIAPJ0000PUS hit a four-month high on Friday, while Wall Street indexes test recent lows. The dollar is refusing to fall.
European inflation data on Friday can set the stage for U.S. jobs data due later in the day as the figures can offer the latest state-of-play for consumer prices and the economy.
A bigger-than-expected drop in the speed of German consumer price rises unleashed a bond rally across Europe earlier this week. But only small declines are forecast.
The U.S. economy likely maintained a solid pace of job and wage growth in December, and that could again stymie bets that an end to rate rises is coming anytime soon.
Key developments that could influence markets on Friday:
- U.S. -farm payrolls (December)
- Fed's Cook, Bostic, Barkin and George all speak
- Euro zone flash inflation (December)
EUROPEAN SHARES SEEN HIGHER AHEAD OF EURO ZONE INFLATION, U.S. JOB DATA (0750 GMT)
European futures point to a start of the day in positive territory for bourses across the region as traders braced for today’s release of December euro zone inflation and U.S. jobs data for clues on how aggressive central banks will be in tightening policy.
The euro zone flash inflation estimate is expected to have slipped below 10%, writes Ipek Ozkardeskaya at Swissquote. "A softer European inflation could soften the ECB hawks, but it will hardly change the ECB’s determination to further tighten its policy for ".
In the U.S., -farmare forecast to show on Friday that 200,000 jobs were created in December, easing from November's 263,000 pace, according to a Reuters survey of economists.