Shaky U.S. stock markets may get another curveball in the form of U.S. inflation data while on the other side of the pond, markets wait to see if British Prime Minister Boris Johnson manages to shore up support after a string of scandals.
In China, the Winter Olympics are getting underway with a display of close ties between Moscow and Beijing.
Here’s your week-ahead in markets:
PRICE POINT
Federal Reserve Chair Jerome Powell is seen delivering remarks on a screen as a trader works on the trading floor at the New York Stock Exchange (NYSE) on Dec. 15, 2021.ANDREW KELLY/Reuters
Fears of a hawkish Federal Reserve brought a tumultuous start of 2022 for U.S. stocks inflation data on Thursday could show is the concerns are fully justified.
January’s U.S. consumer price index is expected to rise 0.4%, a Reuters poll shows. That’s after 0.5% in December, culminating in the largest annual rise in nearly four decades.
Given that Fed Chair Jerome Powell has pledged a sustained battle to tame inflation, the U.S. central bank seems on course to hike interest rates in March. Analysts are upping rate calls; BofA for instance expects seven 25 basis points hikes this year.
How inflation is hitting corporate America’s bottom line will be in focus too, as more fourth-quarter reports roll in, including from Coca-Cola and Pfizer.
HOT HOT HOT
The Bank of England is seen through the columns of a neighbouring building in London March 19, 2008.Luke MacGregor/Reuters
The Bank of England now reckons Britain’s inflation rate could top 7%, well above previous forecasts. No wonder nearly half of its policymakers wanted a bigger increase than the 25 bps hike they agreed on.
With a cost of living crisis a political issue, the government has set out a series of financial support schemes to take the sting out of rising energy prices.
December industrial production data and a Q4 GDP estimate on Friday should provide a sense of how the economy is holding up.
Complicating the picture is a political crisis. Prime Minister Boris Johnson faces anger over a series of missteps, not least the alcohol-fuelled parties held at Downing Street during coronavirus lockdowns. The coming days could bring more clarity on his future.
“STREAMLINED, SAFE AND SPLENDID”
Xi Jinping, then Shanghai's Communist Party chief holds the torch for the Special Olympic Games to be held in Shanghai, China, Sept. 29, 2007.Anonymous/The Associated Press
That’s Chinese President Xi Jinping’s promise for the Beijing Olympics. He could well have been referring to the yuan, this year’s lone currency outperformer against a buoyant dollar.
As China returns from a week-long Lunar New Year break, markets want to know if that outperformance can continue in the face of a growing monetary divergence between the world’s top two economies. January was the strongest month for the yuan since 2017, but Chinese New Year often heralds a reversal.
Yet other factors are at play: elevated commodity prices, curbs to contain Omicron and heavy foreign inflows into domestic bonds - all positive for China’s trade surplus. And Russian President Vladimir Putin is in China for the Olympics, signing more than 15 agreements with Beijing. Both countries are keen on joint financial infrastructure to guard against sanctions from other countries. That probably calls for a strong yuan.
INDIAN DOVES TO DUCK OUT?
The Reserve Bank of India (RBI) seal is pictured on a gate outside the RBI headquarters in Mumbai, India, Feb. 2, 2016.Danish Siddiqui/Reuters
India’s inflation-targeting monetary policy committee has reiterated time and again it will remain supportive of growth until economic recovery is firmly entrenched. But the recent budget may force a rethink.
Sticky inflation and improving confidence on the growth outlook may set the stage for the key lending rate to rise in the coming fiscal year.
The Reserve Bank of India may kick off changes at its Wednesday, possibly by raising its borrowing rate in order to shrink the corridor with the lending rate. Investors will also listen out for the RBI’s views on the budget and how it might help markets absorb a record 14.95 trillion rupees ($200 billion) in borrowing.
STICKY OIL
A storage tank is seen at Ecopetrol's Castilla oil rig platform, in Castilla La Nueva, Colombia June 26, 2018.LUISA GONZALEZ/Reuters
After a month of simmering geopolitical tensions and a 15% oil price surge, OPEC and its allies took a record-quick 16 minutes to decide that, after all, they would stick to previously planned output increases.
Crude prices are around seven-year highs of more than $90 a barrel due to fear of supply disruptions from a multitude of geopolitical flare-ups, above all, a possible Russia-Ukraine conflict. Europe is scrambling to find alternatives to Russian gas, while U.S. winter storms, at a time of general underproduction are an added problem.
Energy prices also risks turning into a political hot potato for governments. Having already contributed to record-high inflation, further price gains risk slowing growth momentum.
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