Next week » Inflation, Bank of Japan and London Stock Exchange
The CPI data was the highlight of the week as US inflation continues to slow. This should continue this week as Canada, the UK and Japan release their December CPIs. The US is also to release additional inflation data in the form of producer price indices. In addition, the meeting of the Bank of Japan will be held on Wednesday.
The BOJ is expected to embark on some form of quantitative tightening after raising the JGB’s 10-year ceiling from 0.25% to 0.50% at its December meeting. While Bank of Japan Governor Kuroda insists that monetary policy remains accommodative, traders don’t see it that way as the yen has risen aggressively in the FX market all week. And it’s income season! This week’s highlights include Goldman Sachs, Morgan Stanley and Netflix.
Last week, the US consumer price index for December was in line with expectations. The overall consumer price index fell from 7.1% y/y in November to 6.5% y/y in December. This is the sixth straight month of falling inflation since peaking at 9.1% year-on-year in July and the lowest level since October 2021. up 5.7% year on year. While both numbers have declined, inflation is still well above the Fed’s 2% target.
However, the markets decided to focus on the December monthly consumer price index, which was -0.1% compared to the expectation of 0% and the previous reading of 0.1%.
This was the first negative impression of the series since May 2020. According to the CME FedWatch tool, markets are pricing a 94% chance of a 25 basis point rate hike when the FOMC meets on Feb. 1 versus only a 75% chance of a 25 basis point hike.
In addition, some analysts point out that the housing component of the CPI is too high and several months behind the rest of the components. Thus, the consumer price index may fall even more in the coming months.
Bank of Japan
The Bank of Japan meets on Wednesday this week. Although interest rates are expected to remain unchanged, traders believe there will be some quantitative tightening as the Bank of Japan conducts a comprehensive monetary policy review at the meeting.
Last month, the Bank of Japan surprised the markets by adjusting its yield curve control (YCC). The CBR extended the range for the 10-year JGB from -/+0.25% to -/+0.50%. And while Bank of Japan Governor Kuroda insists this is not quantitative easing and monetary policy will remain loose, traders are not biting. Some speculate that the Bank of Japan may be ditching its YCC altogether!
As a result, traders have been buying the yen since Thursday to avoid any surprises. USD/JPY has lost almost 440 pips this week to almost 127.70 while GBP/JPY has lost almost 380 pips to 155.89. EUR/JPY is also down 230 pips on the week near 138.25. Recall that after the Bank of Japan surprised the markets at the December meeting, the USD/JPY fell by 520 points in a day!
The start of the reporting season continues this week. For the most part, Wall Street’s big banks beat forecasts on Friday. However, they are concerned about economic uncertainty due to high interest rates and the possibility of a recession. The major banks will complete their release this week with reports from Goldman Sachs and Morgan Stanley on Tuesday. In addition, the first of FAANG will post earnings this week, while Netflix will post earnings on Thursday. Other important companies reporting earnings this week are: KBH, UAL, SI, GS, MS, AA, SCHW, PNC, PG, NFLX. , STT, SLB
Last week, the focus was on the US consumer price index. This week inflation data continues to be published. Canada, the UK and Japan are to release their December CPI this week along with the US producer price index. In addition, China will have a data dump on Tuesday. Keep in mind that this will be the first look at economic data after the Covid zero spread policy is lifted.
Other economic data due this week includes UK and Australian employment data, US, Canadian and UK retail sales data, and Germany’s ZEW index. Other posts this week:
Sunday – January 15, 2023
Japan: CGPI Wholesale Price Index (DEC)
Australia: Private Residence Permit (NOV)
China: real estate prices (December)
Monday – January 16, 2023
Germany: ZEW index – an index of economic sentiment in Germany (January)
United Kingdom: Statement by Governor Bailey of the Bank of England
Canada: Bank of Canada Business Outlook Review
NZIER Business Confidence (Q4)
Australia: Westpac Consumer Confidence (JAN)
China: industrial production (DEC)
China: Retail Sales (DEC)
China: Unemployment rate (DEC)
China: GDP Growth Rate (Q4)
Tuesday – January 17, 2023
Germany: Annual consumer price index (DEC)
United Kingdom: change in the number of applicants (DEC)
UK: average salary (November)
Germany: ZEW Economic Sentiment Index (JANUARY)
Canada: Housing Construction (DEC)
Canada: IPC (DEC)
USA: NY Empire State Manufacturing Index (JAN)
Japan: Reuters Tankan Index (JAN)
Japan: Equipment Orders (November)
Japan: BoJ decision on interest rates
Japan: BoJ quarterly forecast
Japan: Bank of Japan Press Conference
Wednesday – January 18, 2023
United Kingdom: inflation data
EU: Final Inflation Rate (DEC)
Canada: PPI (DEC)
USA: IPP (DEC)
USA: Retail Sales (DEC)
USA: industrial production (DEC)
USA: production volume (DEC)
USA: NAHB Housing Market Index (JANUARY)
New Zealand: food inflation (DEC)
Japan: Balance of Trade (DEC)
Australia: Employment Development (DEC)
Thursday – January 19, 2023
Norway: Norges Bank interest rate decision
USA: Advance Building Permit (DEC)
USA: Housing Construction (DEC)
US: Philadelphia Fed Manufacturing Index (JAN)
Crude oil reserves
New Zealand: Business PMI NZ (DEC)
Japan: CPI (December)
China: base rate on annual loans
China: prime rate on 5-year loans (JAN)
Friday – January 20, 2023
Germany: producer price index (DEC)
United Kingdom: Retail Sales (DEC)
EU: Speech by ECB President Lagarde
Canada: retail sales (November)
USA: Existing Home Sales (DEC)
See » Economic calendar
Chart of the week: FTSE 100 daily
Source: Tradingview, Stone X
Since January 3, the FTSE 100 has traded higher for 9 of 10 trading sessions. On Friday, the main UK index closed at a 4.5-year high and just above the 127.2% Fibonacci retracement level, from the August 19 high to the October 13 low. After last week’s positive GDP data, investors are hopeful that the UK could starve into recession.
After hitting a near-term low on October 13, the FTSE 100 moved towards resistance at 7577.5. From there, it receded slightly, forming the pattern of the flag. The purpose of the flag pattern is the length of the flagpole plus the breakpoint. The price passed the flag on December 21st and hasn’t looked back. The target of the pattern is around 8200 and the price is on the right track.
The only remaining resistance is the 161.8% Fibonacci extension from the previously mentioned 8116.7 timeframe. However, note that the RSI is in the overbought zone, indicating that the stock index may be poised for a correction.
The first support is at the previous high at 7693.5, then the top of the blurry pattern at 7615.4. Below, the price may move away from the 7293.8 flag.
US inflation data was weaker than expected compared to the previous month. Will other countries also publish weaker inflation data this week? And what will the Bank of Japan do? Traders may have done well by buying the yen and selling the Nikkei 100 last week. Can we see “buy the rumor, sell the news” type of trading? Volatility could be high this week if there are any surprises. Manage risk accordingly.
Joe Perry, CMT, FOREX.com » Official site
Disclaimer: The information and opinions contained in this report are for general information only and do not constitute an offer or solicitation to buy or sell any currency contracts or CFDs. Although the information contained herein has been obtained from sources believed to be reliable, the author does not guarantee its accuracy or completeness and accepts no liability for any direct, indirect or consequential damages that may result from anyone relying to such information.