How high is inflation and the other key questions for the week ahead

With global bond yields continuing to set fresh multi-year highs all eyes are on a series of inflation reports, which will show up the extent to which central banks are likely to chase the market moves with policy moves. Alongside inflation reports there is a raft of economic data this week. The September jobs report from the US and the Reserve Bank of Australia's rate decision are also in focus. Elsewhere, Labour holds its annual conference with a just a month to go before the Budget. Q3 wraps up mid-week.

Here’s the key things to watch over the next week.

How bad is inflation?

Inflation reports are the focal point for market participants after a rout in sovereign bonds that picked up pace in recent days to send yields to multi-year, and in some cases, multi-decade highs.

US inflation data is due Wednesday and will shape expectations for the Fed's October meeting, with markets pricing in a roughly 70% chance the FOMC votes for back-to-back rate hikes. Cleveland Fed data indicates PCE inflation running at +0.34% in August, with core PCC at +0.27%. This is the kind of month-on-month level that clears the 'Waller Line' and indicates inflation is not trending down, which would argue for further tightening. There are also inflation reports from Australia, Germany, France, Italy, Switzerland and Japan ahead of the CPI flash estimates for the Eurozone on Friday.

What are central bankers making of it all?

There are a lot of central bank speakers this week to provide their take on what's going on with inflation and the rise in bond yields. Among various Fed speakers and Bank of England rate setters talking the focus should be on the European Central Bank's Christine Lagarde. She speaks several times this week and markets will be wanting to know what, if anything, she has to say about the blowout in Franco-German spreads. As noted before this is a problem for the ECB and may need to be addressed by asset purchases. The other thing to focus on whether ECB is now minded to hike again in December.

How strong is the US jobs market?

Pretty strong, if the prior report suggests a trend. The September nonfarm payrolls report will detail the health of the US labour market, though arguably it's less important right now to the Fed since all the focus is on the inflation side of its mandate. The August report blew past expectations with +162k jobs added, the unemployment rate steady at 4.1% while the participation rate rose, and wages up +0.3% month-on-month. This strong report provided all the cover the Fed needed to hike in September and it's likely that conditions in the labour market remain robust: payrolls are expected to rise by 100k, with the unemployment rate at 4.2%.

So how strong is US economy?

Given the Atlanta Fed's GDP forecast for Q3 is running at +5%, I'd say pretty strong. This is going to be an important consideration for the dollar. Thursday's ISM manufacturing PMI has added importance for the market after the strength of the S&P Global PMI readings that showed services and manufacturing output growth at 5-year highs. The final reading for Q2 GDP is out, too.

What will Andy Burnham say at the Labour conference?

The Labour Party’s annual conference opens in Liverpool on Sunday with Prime Minister Andy Burnham due to address delegates on Tuesday. Whispers are that he's looking at calling an early election. Market participants will also be keen to hear what John Healey has to say at his first conference speech as chancellor on Monday. Recent reports have suggested he may allow a much lower level of fiscal headroom but don't expect him to give too much away about the Budget on 28 October.

Will the RBA join the hiking party?

It seems likely the Reserve Bank of Australia will raise the cash rate by 25bps to 4.60% at the September meeting. The upside surprise to the July CPI inflation reports combined with the solid Q2 GDP report argues for a clear case for the central bank to raise rates. The RBA will also likely signal a willingness to tighten further but refrain from giving a clear intention to raise again in either November or December.

Can Micron keep the AI party going?

Earnings from semiconductor company Micron are due out on Tuesday, 30 September, providing markets with another test of sentiment and demand in the AI space. The $1.2tn company, a supplier of memory chips used alongside Nvidia's AI processors, has been a big winner from the AI buildout. Shares are up around 240% this year. The test for the broader AI trade is really going to be about its guidance and whether it's signalling durable demand growth that can continue at the current lick. Latest data showing Taiwan chip exports up 20% from August to September (+60% YoY) suggest demand for semis/memory is accelerating.

Nothing's Gonna Stop SpaceX's Starship?

SpaceX targets the 14th test flight of its Starship rocket, which it hopes to send into space for the first time from the Texas Starbase on Monday. Launching the rocket into full orbit will be a major milestone as orbital flight is a key hurdle it must clear before it can demonstrate fill commercial viability. It comes after the company said it would wind down Falcon 9, the world’s busiest rocket, flying 165 times last year, to focus on Starship.