Three fundamentals for the week: US inflation and related figures dominate trading

• After a softer jobs report, investors expect a weaker inflation report.
• Thursday's simultaneous publication of PPI, Retail Sales and Jobless Claims promises high volatility.
• Consumer sentiment data on Friday is the last word of the week.

There is only one day of rest between the Nonfarm Payrolls and the next set of fireworks – which is set to be even more spectacular. US Consumer Price Index (CPI) data stand out, and the other releases of the week are also related to inflation.

1) US CPI – the biggest market mover

Tuesday, 12:30 GMT.

It is hard to exaggerate the importance of the Consumer Price Index (CPI) report. It is the first release of hard inflation data, and the Federal Reserve is focused on the topic, not jobs. 

Moreover, there are no ambiguous interpretations to the data – high inflation is bullish only for the US Dollar, while weaker data is bullish for all the rest. A binary figure. 

How have price rises developed recently? They have been trending lower, but January's figures beat estimates, causing worries.

The focus is on Core CPI, which excludes volatile energy and food data, and on the monthly figure. Core CPI MoM is set to show an increase of 0.3% in February, slower than 0.4% in January. Yearly, a deceleration from 3.9% to 3.7% is expected. Headline prices are expected to have risen by 0.4% MoM and 3.1% YoY. 

Ahead of the release, there is growing speculation that January's hotter inflation figures were a one-off and that February's figures would be weaker. If markets sway in that direction ahead of the release, there could be a "buy the rumor, sell the fact" win in which the Greenback would decline ahead of the release and bounce, even if the data is weak.

If markets remain calm toward the publication, a weak CPI report would be well-received, sending the Greenback down, stocks up, and Gold down. In the less likely scenario of surprisingly stronger data, the US Dollar would rise, Gold would melt, and stocks would sink, almost regardless of pre-publication positioning. 

All in all, it's a highly volatile event, and the reaction heavily depends on positioning. 

2) Retail Sales, PPI and Jobless Claims 

Thursday, 12:30 GMT. 

The triple release on Thursday is set to trigger significant price action. To see a trend, all three releases – and their components – would need to go in the same direction. Otherwise, markets will likely first respond to headline retail sales and headline PPI, before responding to the Retail Control Group, Core PPI figures, and Jobless Claims.

Retail Sales are important as some two-thirds of the US economy depends on households’ in consumption, while the Producer Price Index (PPI) data provides a clue about inflation in the pipeline. Jobless Claims data for the week ending on March 8 serve as a snapshot for the labor market.

There is a good chance that data is mixed, triggering a wrong initial move followed by a reversal. Such a whipsaw provides an opportunity to go against the knee-jerk reaction – but may be tricky to trade.

3) US consumer sentiment

Friday, 14:00 GMT.

The University of Michigan's preliminary Consumer Sentiment Index report for March is not a useful leading indicator of consumption. Gasoline prices and the political mood highly influence the people surveyed.

However, the report's inflation expectations components are watched by the Federal Reserve, making them important for markets as well.

With only five days to go before the bank's critical decision, any bump up in this inflation component would cause some worries, while a slide would be good news. 

The long-term inflation expectations component stood at 2.9% in February. A rise to 3% or above would be worrying while holding at 2.9% or falling would be positive news. 

Final thoughts

Volatility is set to increase – and there is room for new trends to emerge. Inflation is the biggest market mover, and any significant surprise would change the narrative ahead of the Federal Reserve decision and beyond.