In the outgoing week, the main trading theme was high inflation and a possible reaction of central banks to it at the upcoming meetings. Oil gained significantly, while bond yields rose reflecting inflation anxiety. The yield on 10-year treasury bonds, after breakout of the local high of 1.8%, was able to test the level of 1.9%. Risk assets and the crypto market, as expected, came under pressure on expectations that the pace of policy normalization by leading central banks could be faster than previously thought. In particular, markets have moved to a new base case, which is that the Fed will raise rates four times in 2022. In my opinion, these expectations are subject to correction.

Next week, on Monday, there will be data on activity in the services and manufacturing sectors of the German and British economies in January. According to these data, the markets will primarily assess the impact of Omicron on the economy, since despite milder reported symptoms and lower hospitalization rates, the threat stems from its high contagiousness and resistance to vaccines.

Key data points on Tuesday are inflation numbers in Australia for the 4th quarter and the US consumer confidence index from the Conference Board.

On Wednesday, the decision on the interest rate will be made by the Bank of Canada, the markets expect a hawkish maneuver, however a rate hike is not in cards.

The FOMC meeting will take place on Thursday. Markets will focus on the Central Bank's assessment of inflation outlook, as well as comments on the timing of the start of the quantitative tightening program (selling assets from the balance sheet).

On Friday, Germany is to put out fourth-quarter GDP data, which should help to assess the pace of ECB tightening as the latter is reluctant to respond solely to inflation outbreak and wants to see strength in the economy before starting to raise rates.