LONDON (Reuters) -It's a packed week ahead for markets with the European Central Bank holding a crunch meeting on whether or not to hike rates again as the economy falters, while the United States releases latest inflation numbers.
Rising oil prices could re-ignite angst about price pressures. Key UK jobs data and a G20 summit, marked by the absence of China's Xi Jinping, are also in focus.
Here's your week ahead in markets from Yoruk Bahceli in Amsterdam, Ira Iosebashvili in New York, Kevin Buckland in Tokyo, Li Gu in Shanghai and Amanda Cooper and Ahmad Ghaddar in London.
1/COIN TOSS
ECB rate hikes were once a done deal for traders, but a year and 425 bps of rises later, those days are long gone.
Inflation has slowed to just over 5% from nearly 12% last October, but is still too sticky for the ECB to relax. Economic activity is slowing fast, however, signalling stagnation for the euro zone, and those record-paced hikes are squeezing financial conditions.
That conundrum has left traders betting on a roughly 40% chance of a hike and 60% chance of a pause when rates-setters meet on Thursday.
Policymakers are sending mixed signals. The doves urge caution; the most hawkish hawks say a pause is not a done deal, but haven't explicitly called for a hike either.
The decision is a coin toss - expect more volatility either way.
2/ TRADING GOLDILOCKS
Stock markets are riding high on the Goldilocks narrative of ebbing inflation and resilient growth, heartened by an August U.S. jobs report that showed labor market conditions easing but not at an alarming pace.
Wednesday's August U.S. inflation data, followed by producer price and retail sales numbers a day later, are the next test.
A headline number far above the 0.5% month-on-month increase expected by economists could revive inflation fears, a sharp dropoff would likely spark worries that growth is slowing too quickly after Fed rate hikes.
Goldman Sachs lowered its probability for a U.S recession in the next year to 15% from 20%.
For now, those in the Goldilocks camp appear to be right. Whether that lasts is another question.
3/ CRACKS IN CHINA Pressure is on China to pump up stimulus with investors disappointed with steps so far. Mainland stocks suffered their worst session in weeks on Thursday, following dreary trade data.
Economic woes have undercut the currency, languishing on the weaker side of the key 7.3 per dollar line in offshore trading and resisting central bank efforts to support it through stronger-than-consensus official midpoint fixings. Every data point is being watched closely. - China's consumer prices returned to positive territory in August while factory-gate price declines slowed, data showed on Saturday.