The yen increased on news that Japan will assess the consequences of its ultra-easy policy this month, while world markets clung to modest gains on Thursday on cautious optimism that U.S. data will prove U.S.inflation is slowing.
Prior to the release of core U.S. consumer price inflation (USCPFY=ECI), which is anticipated to have slowed to 5.7% annually in December from 6% a month earlier, an MSCI index of global equities (.MIWD00000PUS) increased 0.2% to a four-week high by 0831 GMT. The headline U.S. inflation rate is zero month over month (USCPI=ECI).
The U.S. dollar remained close to a seven-month low against a basket of currencies, while bonds continued to rise, reflecting expectations of a lower U.S. inflation report. The benchmark STOXX 600 equities index for Europe increased by 0.4% to reach its highest level since April 2022. The market’s perception of the rate of interest rate increases in the largest economy in the world will be greatly influenced by the data, which is due at 1330 GMT. Markets have set better-than-even odds that the Federal Reserve will increase interest rates by 25 basis points in February rather than 50.
Greatest Trading Days with CPI Release U.S. inflation
“The S&P 500’s weakest and greatest trading days in 2022 coincided with CPI release days. The ability of the current U.S. CPI to influence the following month is therefore unavoidable.” wrote Deutsche Bank strategist Jim Reid.
The U.S. dollar remained close to a seven-month low against a basket of currencies, while bonds continued to rise, reflecting expectations of a lower U.S. inflation report. The benchmark STOXX 600 equities index for Europe increased by 0.4% to reach its highest level since April 2022.
The market’s perception of the rate of interest rate increases in the largest economy in the world will be greatly influenced by the data, which is due at 1330 GMT. Markets have set better-than-even odds that the Federal Reserve will increase interest rates by 25 basis points in February rather than 50.
“The S&P 500’s weakest and greatest trading days in 2022 coincided with CPI release days. The ability of the current U.S. CPI to influence the following month is therefore unavoidable.”
For the first time since the pandemic, two negative CPI surprises in a run were reported in the most recent releases, he continued, “which has raised expectations that the Fed might actually achieve a soft landing after all.”
While Japan’s Nikkei (.N225) stayed stable, the MSCI’s broadest index of Asia-Pacific equities outside of Japan (.MIAPJ0000PUS) increased by 0.1% after reaching a seven-month high.
S&P 500 futures were largely stable after Wall Street indices saw gains on Wednesday. Susan Collins, the president of the Boston Federal Reserve bank, told the New York Times that she was inclined to raise interest rates by 25 basis points.
As China exits the severe COVID limits, demand is expected to increase, keeping oil prices close to one-week peaks.
On Thursday, Brent oil futures reached a high of $83 before easing back slightly to close the day at 82.67 a barrel.
Benchmark 10-year rates decreased 4.4 basis points (bps) to 3.514% as U.S. Treasuries somewhat extended Wednesday’s gains. The benchmark for the eurozone, German 10-year rates, decreased 7 basis points to 3.509%.
ASIAN HOPE
Investors are counting on a recovery in China to support global growth in addition to hoping that Western central banks will adopt a more accommodative stance. They are also keeping an eye on a potential policy change in Japan.
Oil prices remained close to one-week peaks due to expectations for a more favorable rate outlook and an increase in demand as China eases tight COVID regulations.
On Thursday, the price of Brent oil futures reached a high of $83, then marginally declined to close the day at 82.67 a barrel.
U.S. Treasuries slightly increased Wednesday’s gains, driving benchmark 10-year rates down 4.4 basis points (bps) to 3.514%. German 10-year rates, which serve as the benchmark for the Eurozone, decreased 7 basis points to 3.509%.
Chinese hopes
Investors are betting on a revival in China to support the global economy in addition to hoping that Western central banks will be more lenient. They are also keeping an eye on a potential policy change in Japan and counting on a recovery in the West.
China announced lower consumer prices in December and a larger-than-expected decline in factory gate prices on Thursday, highlighting a lackluster demand environment that investors anticipate would improve over the ensuing months.
According to Citi Global Wealth Investments’ senior investment strategist and chief economist Steven Wieting, China’s exit from COVID won’t be enough to significantly improve the global economy. But the balance actually leans the other way.
