LONDON, Jan 19 (Reuters) – Big central banks are kicking
off their first meetings of 2024 with the Bank of Japan and
European Central Bank gathering in coming days, while in
emerging markets Turkey takes centre stage.
Earnings season and a snapshot of how business activity is
holding up in January as turmoil in the Red Sea wreaks havoc on
supply chains are also due.
Here’s a look at the week ahead in world markets from Kevin
Buckland in Tokyo, Yoruk Bahceli in Amsterdam, Lewis Krauskopf
in New York, Amanda Cooper in London and Ezgi Erkoyun in
Istanbul.
1/ ECB VS MARKETS
The ECB meets on Thursday and for all the pushback against
rate-cut speculation, traders have merely delayed bets on a
first move by a month to April. Markets still expect five cuts
this year.
Policymakers are in no hurry to signal cuts and even some
doves say it’s too early to discuss them. Expect more pushback
from ECB boss Christine Lagarde, who warned traders pricing too
many cuts would not help the ECB fight inflation.
Euro zone inflation rose in December and wage growth is
still too high for its liking. While it’s too early for a pivot,
the ECB has halted rate hikes and clarified how it will wind
down its pandemic-era bond-buying scheme.
And Lagarde could be pushed on the impact of supply chain
disruptions in the Red Sea on inflation.
2/ BATTERED YEN BULLS
Just how much the frenzy for an imminent end to Bank of
Japan stimulus has quickly become a frustration is playing out
in currency markets.
The yen has tumbled as much as 5.6% this month alone to
beyond 148 per dollar. That move has happened more quickly than
December’s yen bounce to five-month peaks near 140 from a more
than one-year trough near 152 in mid-November.
A New Year’s Day earthquake on Japan’s west coast cleared
any vestigial bets for an exit from negative rates at the BOJ’s
two-day meeting starting on Monday.
Those wagers had already been tempered by dovish BOJ
commentary, while recent data suggests a cooling of inflation
without any central bank assistance.
Dollar/yen’s approach to 150 could trigger some jawboning
from Tokyo. A weak yen is unpopular with voters, who already
take a poor view of Prime Minister Fumio Kishida’s
administration.
3/ PUSH AND PULL
As some Federal Reserve policymakers push back on market
rate-cut bets, a key U.S. inflation gauge on Thursday should
shed some light on the timing of such a move.
December’s personal consumption expenditures (PCE) reading
comes after the price index increased 2.6% in the 12 months to
November and monthly prices fell for the first time in more than
3-1/2 years.
Money markets price a 61% chance of a 25 bps March cut versus
a 77% chance a week ago.
Higher-than-expected December retail sales numbers have also
raised doubts over whether the Fed will be able to cut as early
as March, as the central bank continues to wrestle inflation
down from the 40-year highs hit in 2022.
U.S. corporate earnings are also on the must-watch list,
including Tesla, Netflix, 3M and Intel
.
4/ FLASH IN THE PAN
Investors are betting heavily on the global economy coasting
gently to a recession-free soft landing, along with rate cuts
this year.
The Jan. 24 flash Purchasing Managers’ Index (PMI) readings
will give a sense of how business activity, in contraction
territory across much of the world, has held up.
New orders and hiring intentions will come under scrutiny as
they are two of the more forward-looking components. New orders
have trends lower everywhere, often a sign of firms preparing
for tough times ahead – at odds with the rosy outlook in
financial markets.
On earnings, it’s a big week for European tech, with ASML
, Logitech and SAP reporting, as
well as luxury powerhouse LVMH.
5/ ONE LAST PUSH
Turkey watchers are keen to see what size rate hike the
central bank will deliver on Thursday, with a
bigger-than-expected rise in the minimum wage, pre-election
spending and a sliding lira keeping risks to the projected
disinflation path well and truly alive.
As part of an economic policy U-turn, Turkey’s central bank
has jacked up rates to 42.5% from 8.5% since June to contain
inflation. In December, the central bank said it was set to
complete the tightening cycle as soon as possible, though
Governor Hafize Gaye Erkan has pledged to maintain tight policy
as long as necessary.
Policymakers already downshifted tightening prospects last
month, saying rates were close to a level that would keep
disinflation on track. Economists expect inflation to hit over
70% by mid-year and decline to around 40% by year-end.
South Africa’s central bank also meets on Thursday and is
expected to keep rates unchanged. Governor Lesetja Kganyago says
disinflation has begun.
(Graphics by Prinz Magtulis, Pasit Kongkunakornkul, Kripa
Jayaram and Sumanta Sen; Compiled by Dhara Ranasinghe; Editing
by Karin Strohecker and Alex Richardson)
