Ahead of the game: 22 January 2024

A robust earnings report from chipmaker Taiwan Semiconductor Manufacturing and a broker upgrade for Apple helped US equities shrug off higher bond yields, spurred by hotter-than-expected economic data and less dovish commentary from the Federal Reserve.

In Australia, the ASX 200 fell for a fifth consecutive session on Thursday. At its lowest point on Thursday, it had corrected 4% from the 7,632.7 high it reached on the first trading day of 2024, weighed down by falls in the Materials, Utilities, and Property sectors.

• US retail sales beat expectations in December, up 0.6% MoM
• US jobless claims dropped to 187k, significantly below the forecasted 207k
• UK inflation rose unexpectedly to 4% YoY in December
• China's Q4 growth at 5.2% YoY, slightly below the 5.3% forecast
• Australia's December jobs report shows a 65.1k drop; unemployment stable at 3.9%
• Westpac Consumer Confidence in Australia dips to 81 in January
• Crude oil up 1.75% to $73.95 amid Pakistan-Iran tensions and US inventory fall
• Gold down 1.28% to $2023, pressured by a stronger US dollar and yields
• VIX index rises to 14.2, indicating increased market volatility.

• AU: NAB Business Confidence (Tuesday, January 23rd at 11:30am AEDT)
• NZ: Inflation (Wednesday, January 24th at 8:45am AEDT)

• CN: 1-year and 5-year Loan Prime Rate (Monday, January 22nd at 12:15pm AEDT)
• JP: BoJ Interest Rate Decision (Tuesday, January 23rd at 2:00pm AEDT)
• JP: Jibun Manufacturing and Services Flash PMIs (Wednesday, January 24th at 2:00pm AEDT)
• JP: BoJ Meeting Minutes (Friday, January 26th at 10:50am AEDT)

• US: S&P Flash PMIs (Thursday, January 25th at 1:45am AEDT)
• US: Durable Goods Orders and Q4 GDP (Friday, January 26th at 12:30am AEDT)
• US: Core PCE Price Index (Saturday, January 27th at 12:30am AEDT)

• GE: HCOB Flash PMIs (Wednesday, January 24th at 7.30pm AEDT)
• EA: HCOB Flash PMIs (Tuesday, January 24th at 8:00pm AEDT)
• UK: HCOB Flash PMIs (Tuesday, January 24th at 8:30pm AEDT)
• GE: Ifo Business Climate (Friday, January 25th at 8:00pm AEDT)
• ECB: Interest Rate Decision (Friday, January 26th at 12:15am AEDT)

• CN

1-year and 5-year loan prime rate

Date: Monday, 22 January at 12.15pm AEDT

The ongoing trend of weak economic data from China into 2024 has intensified calls for further action by authorities to stabilise growth conditions. Tepid domestic demand, challenging labour conditions, and a slump in the property market continue to be significant economic obstacles.

Despite this backdrop, China’s central bank surprised the market earlier this week by maintaining its medium-term policy rate (MLF) at 2.5%, highlighting its limited scope for monetary easing due to a weakening currency.

With the MLF rate often viewed as an indicator for adjustments in the Loan Prime Rate (LPR), the consensus is that the one-year and five-year LPR will also remain unchanged at 3.45% and 4.2% respectively. Nevertheless, there is still a strong anticipation for further rate cuts later in the year.

China's 1-year and 5-year loan prime rate (LPR)

• JP

BoJ interest rate decision

Date: Tuesday, 23 January at 2pm AEDT

At the upcoming meeting, widespread expectations suggest the BoJ will maintain its ultra-loose monetary policies, including keeping its short-term interest rate target at -0.1% and the 10-year bond yield near 0%. This stance follows subdued wage growth in November, a further easing in inflation, and economic uncertainty stemming from the devastating New Year's Day earthquake.

Over the past year, the BoJ appears to be preparing for a potential policy shift, but unclear communications about the timeline have left markets eager for any clues in the BoJ Governor’s upcoming remarks. Broad market expectations are for the BoJ to exit negative rates only in the second quarter of 2024.

Attention will also focus on the central bank's updated economic projections. While it seems unlikely, any upward revisions to inflation forecasts for FY2024 and FY2025 could signal to markets a more rapid policy shift.

Japan's main policy rate

• ECB

Interest rate decision

Date: Friday, 26 January at 12.15am AEDT

At its last meeting in December, the ECB maintained its deposit rate at 4.00%, as broadly anticipated. The ECB emphasised that with interest rates at this level, a "substantial contribution" will be made towards returning CPI to its 2% target by 2025. Inflation data for December, received in early January, indicated core inflation cooling to 3.4%, the lowest since March 2022, while headline inflation remained below 3%.

This suggests that higher interest rates are effectively combating high inflation, but tighter monetary policy also impacts growth and economic activity. Reflecting concerns that the European economy, particularly Germany, is on the brink of recession in 2024, the European rates market is factoring in 135 basis points of ECB rate cuts for the year.

This week, ECB President Lagarde remarked that the aggressive pricing of rate cuts is not “aiding our fight against inflation”. The ECB is expected to maintain rates in January, with the first rate cut unlikely before April at the earliest.

ECB interest rate chart

• US

Core PCE inflation

Date: Saturday, 27 January at 12:30am AEDT

The Fed's preferred measure of inflation rose by 3.2% YoY in November, below market expectations of 3.3%, and a decrease from 3.5% in October. On a six-month annualised basis, Core PCE increased by 1.9%, suggesting that if the current pace of disinflation continues, the Fed will reach its 2% target in the coming months.

This month (December), the market anticipates Core PCE inflation to decline to 3% YoY. The headline PCE rate is expected to remain steady at 2.6% YoY. If the market consensus forecast is accurate, it will bolster expectations that the Fed may reduce rates up to six times in 2024.

Headline PCE price index

• US

Q4 earnings season

US Q4 earnings season continues with reports scheduled from companies including Johnson and Johnson, Procter and Gamble, Netflix, Tesla, Intel Corp, Visa and American Express.