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(Sharecast News) - The latest US inflation reading will be the star of the show on Friday, while in the UK, GDP, industrial production and manufacturing production figures for July will be out.
The US consumer price index for August, due at 1330 BST, follows a blowout non-farm payrolls report last week. Figures out last Friday showed the US added 162,000 jobs in August, well above market expectations, with an additional 55,000 of upward revisions to the past two months.
Neil Wilson, UK investor strategist at Saxo Markets, said key US inflation data is the biggest test for the bond market after a fractious start to September as yields on government debt soared to multi-year highs.
"The CPI data...is the last piece of the puzzle for the Federal Reserve ahead of its September 15/16 meeting," he said.
"Bond markets were under pressure after Kevin Warsh, the Fed chair, seemed to offer a hawkish read on the path of inflation in his remarks at Jackson Hole. However, influential Fed governor Chris Waller later suggested he would support holding rates steady this month if the data indicates inflation still trending towards target. The reaction function remains muddy and the data has not given a clear enough read.
"After reaching a four-year high of 4.2% in May, CPI inflation had fallen to 3.4% by July, rising 0.1% on the month. Core CPI, which strips out food and energy, rose 0.2% MoM and 2.5% year-on-year. The relative cooling in the level kept markets believing the Fed will stay on hold. Since then however we have seen some more persistent signs of inflation. PCE inflation is at +3.7% for the year, while Core PCE posted +0.2% MoM and +3.3% YoY last month.
"Core PCE was 3.0% using a three-month annualised rate and so-called 'supercore' services was unchanged, at 3.8% YoY, which points to persistently sticky service-sector inflation."
Wilson said the hot jobs report last Friday cemented the view that the Fed doesn't need to worry about the labour market and that it remains short the inflation side of its mandate. "After the jobs data Trump demanded the Fed to cut rates or he'll end trade with countries with which the US maintains trade deficits. Even if inflation is hotter than expected, would Warsh dare consider hiking against the will of the President?," he said.
On the corporate front, housebuilder Berkeley Group will release a trading update.