Upbeat US inflation report is expected

US financial markets were gripped by turmoil last week as investors considered the possibility of faster tightening by the Federal Reserve on strong jobs market and economy reports. Both the SP 500 and Dow industrial recorded second straight weekly losses with the broad market drop accelerating to 5.2% from 3.9% last week, while the ICE dollar index rose 1.4%.

The SP 500 closed lower every session last week except Tuesday and Friday. It tumbled 4.1% Monday, turning negative for the year. SP 500 rebounded 1.7% Tuesday retreating 0.5% next session. It tumbled 4.2% Thursday entering correction territory, defined as a decline of at least 10% or more from recent highs. The broad market climbed 1.5% Friday ending the week on positive note.

The ICE dollar index advanced in every session except Thursday last week. It gained 0.5% Monday as the ISM Non-Manufacturing PMI index jumped to 59.9 in January from an upwardly revised 56 in December. The reading pointed to the strongest expansion in the services sector since August of 2005. The dollar index inched higher next session and added 0.8% Wednesday as New York Fed President William Dudley said the recent drop in the stock market wasn’t big enough to alter the economic outlook. The dollar slipped 0.01% Thursday, rebounding 0.2% Friday.

The US consumer price data due Wednesday are the most important event this week. A rise in inflation above 2%, as widely expected, will strengthen the case US economic growth is solid, supporting the view the Federal Reserve may need to increase the pace of interest rate hikes. Japan will report fourth quarter gross domestic product on Wednesday, and Australia labor market data are due Thursday.