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This week, the PPI, CPI, and Retail Sales data will be significant, especially after the strong December job report. The household survey was similarly robust, showing that nearly 478,000 people found jobs while the number of unemployed individuals decreased by 235,000.

In context, there were 7.1 million unemployed individuals in November, compared to 6.88 million in December—a substantial drop. A closer look shows that the number of people who lost jobs declined from 3.394 million in November to 3.251 million in December. Additionally, new entrants to the labor force decreased from 2.87 million to 2.686 million, contributing to the unemployment rate’s decline.

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The report also included notable revisions. For instance, the July unemployment rate was adjusted from 4.3% to 4.2%, while March saw an upward revision from 3.8% to 3.9%. These revisions are critical as they redefine the series’ high points. 

Significant revisions are expected in January, particularly for the household survey, which will make comparing previous reports difficult. Changes to the establishment survey are also planned for January, which may complicate future data interpretation.

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Friday’s University of Michigan inflation data shows year-ahead inflation expectations rose from 2.8% in November to 3.3% in December, and the five-to-ten-year outlook increased from 3.0% to 3.3%—a series high. This is the highest level since 2008, signaling persistent inflation concerns despite the Fed’s aggressive rate hikes. Preliminary data can be volatile, so revisions at the end of the month will be crucial.

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This week brings a wealth of key data. On Jan. 14, the NFIB survey will provide additional insights into inflation. Due the same day, the PPI report is expected to show a 0.4% month-over-month increase, with core PPI rising 0.3% from 0.2%. On Wednesday, CPI is expected to rise 0.3% month-over-month, with year-over-year core CPI projected at 2.9%, up from 2.7%. CPI swaps suggest the headline figure may come in hotter than expected.

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Retail sales are forecast to decline by 0.6% on Jan. 16, while the control group will remain flat at 0.4%. That day, import prices and initial jobless claims will also be released, followed by housing starts data on Friday.

Regarding Fed activity, notable speakers include Williams on Jan. 14 and 15, Kashkari and Barkin on Jan. 15, and Goolsbee, who will speak before the Fed enters its blackout period starting Jan. 18.

After the jobs report, markets are signaling fewer rate cuts in 2025, with the first expected around September or October. The odds of a second-rate cut are only about 13%. Forward rates suggest three-month Treasury yields could rise by 15-20 basis points in the next 12-18 months, implying a potential rate hike if economic data remains strong and inflation persists.

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The steepening yield curve supports this outlook, with the 10-year yield rising to 4.76% and the 30-year at 4.95%. The spread between the 10-year and 2-year Treasuries has widened to 40 basis points, while the 30-year minus three-month spread reached 61 basis points. A further breakout could lead to significant steepening.

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In currency markets, the dollar index (DXY) is nearing resistance at the 109.60 level, with the potential to reach the 111 mark.

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The euro has been stalling in the 1.02-1.03 range, but a break below the 1.02 level could push it under parity.

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The yen remains weak. Barring unexpected action from the Bank of Japan, the USD/JPY currency pair could run to the 165 mark.

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For the S&P 500, last week’s close around the 5,825 level broke key support at 5,875. If downside momentum continues, we could see the index drop to the mid-5600s.

Options market dynamics will play a significant role, with the put wall at the 5,800 level and the negative gamma flip zone at the 5,930 mark. Expect elevated implied volatility heading into the CPI report, with the potential for a volatility crush afterward.

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