Japanese wholesale prices are rising faster than expected
Japanese producer prices, or wholesale prices, rose 10.2% in December from a year ago, according to official data.
That was higher than a 9.5% increase expected by economists polled by Reuters and marked the third straight increase in monthly readings.
The country’s producer prices rose 0.5% month on month, also higher than expected with an increase of 0.3%.
— Jihye Lee
Week Ahead: China Industrial Production, Retail Sales, GDP and Bank of Japan Interest Rate Decision
A slew of economic data is expected for the week of January 16, including China’s industrial production and gross domestic product, as well as the Bank of Japan’s interest rate decision.
On Monday, South Korea will publish revised trade figures and Indonesia will announce its trade balance for December. India will release its wholesale price index, which economists polled by Reuters expect to fall to 5.6% in December.
China will release retail sales, industrial production, urban fixed asset investment for December and gross domestic product for the quarter on Tuesday. Singapore will publish its non-oil exports for December on the same day.
On Wednesday, the Bank of Japan will wrap up its monetary policy meeting and likely maintain its ultra-low interest rates. Investors will be looking for clues as to who may be Governor Haruhiko Kuroda’s successor and any possible policy change ahead.
Japan is expected to release machine orders for November on the same day, while Malaysia will release trade data for December.
On Thursday, Malaysia’s central bank will announce its monetary policy rate, while Australia will publish its employment figures.
On Friday, China will publish its interest rates for one-year and five-year loans. The Japanese consumer price index is also expected for December.
— Jihye Lee
The inflation outlook is softening again, with traders fully expecting a rate hike of a quarter point
Declining consumer inflation expectations coincide with the expectation that the Federal Reserve will likely taper the level of interest rate hikes within a few weeks and end them soon.
The University of Michigan Consumer Confidence Survey on Friday found that the one-year inflation expectation has fallen to 4%, the third straight monthly decline and the lowest level since April 2021.
At the same time, traders assigned a 94.2% chance of a 0.25 percentage point rate hike on Feb. 1, when the Fed’s next two-day meeting closes. That’s another smaller step than December’s 0.5 percentage point increase, which itself was a slowdown from four consecutive 0.75 percentage point increases.
“Inflation expectations are well anchored and are improving as price pressures ease in many sectors. The Fed is likely to raise by 0.25% at its upcoming meeting later this month,” said LPL Financial chief economist Jeffrey Roach. “We shouldn’t be surprised if the Fed starts talking about a break in the near future.”
Consumer confidence rises for the second month in a row
The University of Michigan said its consumer confidence index has risen for the second month in a row, though it remains at historically low levels. The index climbed from 59.7 in December to 64.6. Still, it remains about 4% below the level of the previous year.
“Uncertainty about both measures of inflation expectations remains high, and changes in global factors in the coming months could reverse recent improvements,” said Joanne Hsu, director of Surveys of Consumers.
— Fred Imbert
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How will the Fed respond to falling inflation, recession warnings from bank CEOs?
A negative inflation rating on Thursday coupled with warnings from major banks of a mild recession on Friday could be signs that the Fed will soon pause or even cut rates this year, but that would require another change of course from the central bank.
“You don’t have to agree with the Fed’s policies to believe them,” said Lauren Goodwin, economist and portfolio strategist at New York Life Investments.
Goodwin pointed out that the vast majority of voting Fed members at this year’s last meeting predicted a Fed Funds rate of 5% or higher. And given the concerns some central bankers have expressed about the consequences of pausing too early, they may be determined to achieve that goal.
“With a relatively high level of consensus and conviction, they have said they are going to raise the policy rate to 25 basis points higher than what the market says. And frankly, unless we see a slowdown in inflation or a collapse in economic growth soon. ” … I don’t think they’ll change their minds,” Goodwin added.