Key Takeaways

  • A data-heavy week culminates with the US Non-Farm Payrolls and Canadian jobs reports on Friday, critical for North American rate expectations.
  • Eurozone Flash HICP inflation is expected to hit the ECB's 2% target, but services inflation remains a key watchpoint for traders.
  • ISM PMI data will gauge US economic momentum, with flash readings showing slowing growth in both manufacturing and services.
  • Political uncertainty surrounds the potential announcement of President Trump's nominee to replace Fed Chair Powell in 2026.
  • Central bank minutes from the SNB and inflation prints from Australia, Sweden, and Switzerland provide global policy context.

What This Means for Traders

Traders face a week defined by high-impact data and political event risk. The primary directive is to gauge the resilience of major economies and the corresponding central bank policy paths. A strong US jobs report, coupled with sticky ISM data, could challenge the Fed's recent dovish pivot and support the dollar, potentially pressuring equities. Conversely, signs of a cooling labor market would reinforce rate cut expectations. In Europe, inflation at target may fuel ECB cut speculation, weighing on the euro. The looming Fed Chair nomination adds a layer of political volatility to USD pairs, with candidates like Hassett and Warsh perceived as potentially more aligned with White House preferences than the incumbent Powell. Position for volatility around Friday's data dump and monitor headlines for any Fed nominee leaks.

US Data Deluge: Jobs and PMIs Set the Tone

The week's main event is undoubtedly the US December employment report. Following a volatile October (-105k) and a rebound in November (+64k), consensus expects a moderation to +55k, with the unemployment rate dipping to 4.5%. Traders should look beyond the headline: the composition of job gains, wage growth, and revisions will be critical. A report confirming labor market softening would validate the Fed's December rate cut and bolster expectations for further easing in 2026. However, persistent strength, particularly in wages, could reignite inflation fears and lead markets to pare back rate cut bets aggressively.

Preceding NFP, the ISM Manufacturing and Services PMIs offer a real-time pulse of the economy. The flash S&P Global PMIs showed concerning cracks: manufacturing new orders fell for the first time in a year, while services growth hit a six-month low. The official ISM versions will be scrutinized for confirmation. A significant miss in either, especially services which dominates the US economy, could trigger a risk-off move, boosting bonds and pressuring the dollar ahead of Friday's jobs data. The JOLTS report on Wednesday provides additional depth on labor demand.

Eurozone Inflation: Mission Accomplished?

The Eurozone Flash HICP for December is forecast to show headline inflation cooling to 2.0% year-on-year, finally aligning with the ECB's target. The anticipated drop is largely attributed to lower energy prices. However, for traders, the devil is in the details. Core inflation is expected to hold steady at 2.4%, with services inflation the persistent sticky component. The ECB has explicitly tied future policy moves to wage growth and services inflation dynamics. A print that shows core or services inflation surprising to the upside would be a hawkish signal, potentially delaying expectations for the ECB's next rate cut and offering support to the euro. Preliminary German and French HICP data on Tuesday will set the stage.

The Shadow of the Fed Chair Nomination

While not a scheduled data point, the potential announcement of President Trump's pick to succeed Jerome Powell in 2026 casts a long shadow over markets. The President's repeated criticism of Powell for being "too slow" to cut rates suggests a preference for a more dovish, or at least politically compliant, chair. The current frontrunner, NEC Director Kevin Hassett (41% on Polymarket), has seen his lead diminish amid reports of internal opposition. Former Fed Governor Kevin Warsh (32%) and current Governor Christopher Waller (15%) are the other main contenders.

Trader Insight: A nomination of Hassett or Warsh could be initially perceived as increasing political influence on the Fed, potentially triggering USD weakness on fears of policy politicization. Waller, as an internal candidate, would represent continuity. However, all candidates would face a Senate confirmation process, guaranteeing uncertainty. Traders should monitor USD/JPY and Treasury yields for sensitivity to any official announcement or credible leak.

Global Central Bank Watch

The week is rich with international policy cues:

  • Australia CPI (Wed): November inflation is critical for RBA outlook. A hot print following October's 3.8% could force markets to price out 2026 rate cuts, boosting AUD.
  • SNB Minutes (Thu): The details behind the SNB's sharp 2026 inflation cut to 0.3% will be parsed. Chairman Schlegel's comment that a lower CPI outlook does not necessarily make negative rates (NIRP) more likely is key. A dovish tilt could pressure CHF.
  • Swedish & Swiss CPI (Thu): Both are expected to show benign price pressures, reinforcing the patient stance communicated by the Riksbank and SNB.
  • Canadian Jobs (Fri): Following a strong November, another solid report could solidify the market's current pricing of a potential BoC rate hike in 2026, providing strong support for CAD.

Conclusion: Navigating a Macro Crossroads

The coming week presents a fundamental stress test for the dominant market narrative of disinflation and a soft landing. The US data will answer whether the economy is cooling sufficiently to justify the Fed's pivot, or if resilient activity and employment complicate the path to further cuts. Simultaneously, Eurozone inflation at target presents its own policy dilemma for the ECB. Layered on top is the unusual uncertainty of a looming Fed leadership change, a reminder that institutional independence is now a variable in market equations.

For active traders, this environment favors nimble, data-reactive strategies over conviction holds. Key levels in major indices, Treasury yields, and currency pairs are likely to be tested. The safest positioning may be in volatility itself, as binary outcomes on jobs and inflation collide with unpredictable political developments. The week ahead is not just about the numbers, but about the stories they tell regarding growth, policy, and the very framework of central banking.