Take Five: Tokyo has a lot to say (and Davos)
As business executives and officials gather (in person this time) in the Swiss resort of Davos to discuss how to make the world a better place, Japan’s central bank appears prepared to lift its inflation projections and discuss additional policy changes.
There is a lot to consider given the U.S. profits and retail sales figures, a plethora of China data, and other countries’ inflation rates.
From Kevin Buckland in Tokyo, Tom Westbrook in Singapore, Ira Iosebashvili in New York, and Amanda Cooper and Karin Strohecker in London, here is a glance at the markets for the next week.
FIRST, WATCH THE BOJ
Just four weeks after shocking the markets by expanding the size of the band it permits 10-year bond yields (JGB) to fluctuate around zero, the Bank of Japan will likely blink when its two-day meeting comes to an end on Wednesday, according to investors.
After bumping up against the 0.5% ceiling in earlier sessions, the benchmark yield climbed as high as 0.54% on Friday. The last straw appears to have been a media story that officials will investigate bond market anomalies caused by the large BOJ stimulus. The yen reached a new seven-month high.
Additionally, the justification for ultra-easy policy appears to be eroding. The central bank’s aim for inflation in Tokyo was doubled, according to recent data. Additionally, Japanese workers are hoping that the parent firm of Uniqlo’s move to raise salaries by as much as 40% will set a precedent.
2. ALLOW THE SNOW
The World Economic Forum (WEF), which takes place from January 16–20 in the Swiss ski resort of Davos, attracts a record number of world leaders, policymakers, and senior corporate executives.
The cost of living problem, the threat of natural disasters and extreme weather events, geo-economic conflict, and the failure to prevent climate change are the top concerns over the next two years, according to a survey of WEF members, and these issues are weighing heavily on attendance.
The first anniversary of Russia’s conflict in Ukraine, which has shaken an international economy still reeling from the effects of COVID-19, is also fast approaching.
Attendance is anticipated from ECB President Christine Lagarde, German Chancellor Olaf Scholz, NATO General Secretary Jens Stoltenberg, and Chinese Vice-Premier Liu He.
3/ HOPE AND FAITH
There will be more earnings releases and information about US retail sales. Investors are taking note, as evidenced by the S&P 500’s roughly 4% gain so far this month, which follows the index’s worst yearly drop since 2008 last year.
In November, retail sales had their worst decline in 11 months. A second decline of this magnitude would be further proof that the economy is currently being cooled by the Federal Reserve’s relentless interest rate hikes.
After a 0.6% loss in November, economists anticipate a 0.5% decline in December’s number, which will be released on January 18.
Investors are also keeping an eye on business earnings to see if American companies can outperform predictions, which have significantly decreased since October. On Tuesday, Procter & Gamble (NYSE: PG) and Morgan Stanley (NYSE: MS) report earnings; on Thursday, Netflix (NASDAQ:NFLX) and Goldman Sachs (NYSE: GS) do the same.
4 – JUMP!
The start of the new lunar year of the rabbit is quickly approaching, and COVID-19 is rapidly spreading throughout China.
Before that, there will be a data avalanche in December, with figures on industrial output, retail sales, and Q4 GDP growth all pointing to dismal results. Retail sales are anticipated to have decreased 7.8%, marking the fourth consecutive month of declines, and yearly growth to have been a meagre 1.8%.
Markets may have to wait in the hopes that China’s quick reopening will lessen the impact and chances of a global recession.
The two billion trips that are anticipated to take people back to their hometowns to rejoice will be given just as much attention. Although mainland markets will be closed the next week, holiday tales about people’s propensity to travel, spend money, and socialise may help people make predictions about how the reopening will go.
Fifth, global inflation
Investors grow increasingly confident that the worst of the global pricing crunch is behind us with each fresh inflation print. Not least of all because the statistics will indicate a far smaller growth and, in some cases, even a drop by spring and a year after Russia’s invasion of Ukraine.
Although the severity of the situation last year may have inflated headline numbers, core inflation is still increasing. Furthermore, this figure is the source of central bankers’ insomnia.
There will be data from Britain, Canada, and Japan as well as the final reading for the euro zone’s inflation for December. All four of the regions have primarily growing and above-target core inflation. The worst may be over, but rather than the beginning of the end, it’s more likely to be the end of the beginning.