Retail Sales, PPI, Microsoft Job Cuts, IEA Oil Warns


© Reuters.

By Geoffrey Smith

Investing.com – The US releases retail sales and producer prices data for December that may or may not encourage more hopes for a pivot from the Federal Reserve. However, the Bank of Japan refuses to pivot, despite all bets that it will be forced to give up its ceiling on bond yields. Similarly, the Bank of England is under pressure to tighten after strong inflation data for December. Microsoft is expected to announce a round of job cuts, PNC Financial and JB Hunt report their earnings. Oil hit its highest level in more than a month on expectations that the global market will swing into a major supply shortage by the end of the year. Here’s what you need to know in the financial markets on Wednesday, January 18th.

1. RETAIL SALES, PPI TO FEED THE FEDERAL Pivot Narrative

The US releases data for December at 08:30 EST (13:30 GMT), in the latest test of the US consumer’s ability to keep spending despite the economic slowdown.

Analysts expect a 0.8% decline in sales values, which could translate to a slight decrease in sales volumes given consumer prices fell 0.1% last month.

There will also be inflation data for December, where a 0.1% decline is expected. If confirmed, the producer price index would rise to an 18-month low, adding to evidence that the expansion in profit margins that drove inflation during the pandemic is now rapidly reversing.

2. There is no Japanese word for “hub”

It kept its monetary policy unchanged, defying expectations that it would ease the ceiling on long-term bond yields.

Financial markets bet heavily on the Bank of Japan abandoning its policy of yield curve control, and the decision prompted some rapid retreat from speculative positions in the yen, whose low interest made it the funding currency of choice for many rate-based trades.

The dollar rose as much as 2% against the BoJ’s decisions, but later gave up more than half of its gains to trade up 0.9% by 06:15 ET. This suggests that the market still wants to test the BoJ’s resolve to defend a 0.5% cap on the 10-year Japanese bond yield. The Bank of Japan spent more than $260 billion in December keeping yields low, and now owns more than half of the entire Japanese government bond market.

3. Stocks are poised to open marginally higher ahead of retail sales. Microsoft is preparing to announce job cuts

US stock markets are set to open partially higher, but futures are showing little conviction ahead of the retail sales report.

By 06:15, it was up 22 points or less than 0.1%, while it was up 0.1% and up 0.2%. The major monetary indexes had a mixed day on Tuesday, with weak earnings from Goldman Sachs (NYSE:) sending the Dow down nearly 400 points.

Stocks likely to come into focus later include Microsoft (NASDAQ: ), which reports indicate is likely to announce a round of job cuts during the day. The Redmond giant reported its slowest revenue growth in five years in the third quarter. Fourth-quarter results are due next week.

Profits are due at a later date Charles Schwab (NYSE:) Prologis (NYSE:), PNC Financial (NYSE:), and JB Hunt (NASDAQ:), among others.

4. BoE under pressure to continue rising after strong CPI data

The index rose to test its highest level in seven months after the UK held steady above 10% in December, keeping pressure on the Bank of England to raise interest further.

Overall inflation remained at 10.5%, with food and service prices continuing to rise strongly. The figures validated anecdotal reports from the retail sector which indicated that spending remained strong despite continued cost-of-living pressure.

By contrast, the drop eased after a Bloomberg report indicated that many ECB policymakers are looking to slow the pace of its action after its next meeting in February. Bank of France Governor François Villeroi de Gallau warned that the directive to raise 50 basis points in February is still valid.

5. Oil rose to its highest level in six weeks after the International Energy Agency expected a deficit. API stocks receivable

Crude oil prices rose to their highest levels in more than a month after the International Energy Agency predicted a sharp swing in the global supply-demand balance during the year due to a rebound in Chinese demand.

The International Energy Agency expects a surplus of about 1 million bpd in the first quarter of the year, swinging to a deficit of 1.6 million bpd in the third quarter widening to 2.4 million bpd by the end of the year, despite record global oil supplies.

By 06:30, futures contracts were up 1.9% at $82.00 a barrel, while they were up 1.6% at $87.33 a barrel. The API’s weekly data on US inventories is due at 16:30 ET.

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