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Weekly Market Preview
Friday, Jan 19, 2023
Next week, investors are keenly anticipating a series of economic data releases and interest rate decisions from major global central banks. While the Bank of Japan is expected to maintain its current interest rates, the spotlight will be on statements from Japanese monetary policymakers, providing potential insights into the prospect of shifting interest rates into positive territory later this year.
In the aftermath of recently published inflation figures for major global economies, a deceleration in their decline is evident. This slowdown may require a higher for longer interest rates until pushing inflation rates closer to their target of 2%. Geopolitical tensions in the Red Sea have forced companies to alter shipping routes, potentially increasing the cost of transporting goods, especially food items. Such a development could impede the desired decline in inflation rates and hinder central banks from initiating interest rate cuts promptly.
Therefore, it is expected that the Bank of Canada to maintain its current interest rates at the upcoming meeting. Similarly, the European Central Bank is likely to keep rates unchanged especially after the rebound of the CPI headline from 2.4% in November to 2.9% in December. Investors will tune in to the ECB President Mrs. Lagarde’s press conference, where she is expected to rule out cutting rates in the first quarter and consider them in the second quarter.
Markets will also monitor the US GDP data for the fourth quarter of the previous year. Expectations point to a significant decline from 4.9% in the third quarter to 1.8% in the final quarter of the year. Additionally, attention will be paid to the release of the US personal spending index data for December, the Fed’s favorite indicator in gauging inflation levels. Given the decline in this indicator to 2.6% in November, a continued downward trajectory toward the 2% threshold could pave the way for the Fed to commence interest rate reductions, potentially starting from the May meeting.
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