Five fundamentals for the week: US CPI overtowers (almost) everything

• US CPI, the biggest market mover, may spark another rally. 
• A deep dive into American consumption and inflation in the UK serve as additional major market movers. 
• The absence of Chinese traders from markets will likely have a positive impact on markets.

More fireworks than usual – that was the conclusion after the blockbuster US Nonfarm Payrolls report. The release of the Consumer Price Index (CPI) report could be even bigger, as all eyes remain on inflation. 

While China is on holiday (the Lunar New Year also impacts markets) the release of consumer data from the US and UK inflation data add spice to an intense week. 

1) Chinese holiday may boost markets

The world's second-largest economy has a week off – but even a non-event can move markets. The lack of any big news coming out of Beijing is positive, as recent figures from China have been worrying. A break from concerns about demand would benefit Oil and also stocks. The only risk is a report suggesting fewer people are traveling and consuming around the Lunar New Year, but that is unlikely to be the case. The bad news will likely wait for next week. 

2) US CPI inflation – Core CPI MoM and headline YoY are eyed

Tuesday, 13:30 GMT: After Nonfarm Payrolls surprised with bigger fireworks than expected, the release of US Consumer Price Index (CPI) data could be even greater. There are fewer nuances here: inflation is falling faster or slower than expected. Softer inflation would boost Gold and Oil, while hurting the US Dollar. Ongoing stubborn inflation would hurt equities and the precious metal, sending the Greenback higher. 

The most important figure to watch is Core CPI MoM – as it represents the latest development in the figure the Federal Reserve cares about. The Fed has a limited impact on energy and food prices set in global markets and more on everything else, such as housing and investment. With higher interest rates, people are encouraged to save more and take fewer loans. It is expected to rise by 0.3%, a relatively high level. A 0.2% would be meaningful. 

The second figure to watch is the headline CPI YoY. That is the figure most watched by the media. A slide from 3.4% to 3.0% is expected, and it would be good news for stocks and Gold, hurting the US Dollar. However, a small rise to 3.1%, or higher would somewhat ruin the party. Seeing a 2% handle would also boost consumer confidence while seeing it stubbornly above 3% would be disappointing.

As Nonfarm Payrolls showed, when all figures go in the same direction, the impact on markets is much stronger than when the data is mixed. Nevertheless, I expect a mixed report to boost stocks, as that is the trend eventually. The picture would be choppy and eventually sideways for Gold and the US Dollar. 

3) UK inflation set to build a global narrative

Wednesday, 7:00 GMT. Contrary to the US and the eurozone, price rises in the UK are still elevated at 4%. Is the UK unique, or just lagging behind? A small rise is on the cards, and that would boost the Pound. A surprising drop below 3.9% would send it down. A bigger shock in either direction would also impact the Euro, as the economies are well-correlated. To impact the US Dollar, the surprise in UK inflation would have to be aligned with the one in American inflation trends. If both fall more than expected, Britain's report will strengthen the notion that global inflation is coming down, sending the Greenback down while boosting Gold and stocks. Another disappointing report shows inflation is stubborn, which would hurt markets. 

4) US Retail Sales – will shoppers take a break?

Thursday, 13:30 GMT. Never underestimate the relentless US consumer – non-stop shopping. However, the economic calendar points to a small drop in headline sales following months of gains. Another month of gains would boost the US Dollar and hurt Gold, while a bigger slide would do the opposite. What would happen with stocks? Here, there is room for a more mixed reaction. While better sales imply higher interest rates, they also indicate healthy consumption and robust company profits. As consumption is roughly two-thirds of the US economy, the release has a large impact – but relatively short-lived, as big surprises are often accompanied by significant revisions to the other direction. Overall, this report could be an opportunity to go against the initial reaction. 

5) US Consumer Sentiment

Friday, 15:00 GMT, The last word of the week belongs to the forward-looking survey from the University of Michigan. Shoppers seemed depressed due to higher gasoline prices and inflation in general, but the recent report for January showed a big leap in confidence. A similar outcome is on the cards in the preliminary publication for February. The impact will likely be similar to Retail Sales, albeit not as strong. Another figure to watch out for is the long-term inflation expectations component. As it is inflation-related, the impact is binary, the lower it goes, the better the prospects for stocks and Gold, the worse for the US Dollar. Any rise in what consumers say about the future would be adverse.