This week saw the BoJ resisting market pressure to adjust its ultra-loose monetary policy. However, how long can the BoJ keep up this policy? Expect the markets to test their resolve over the coming weeks. US Inflation data in the form of falling PPI provided further relief to markets as the peak in inflation seems to be confirmed for the US. Short Term Interest Rate markets are maintaining their pricing for two rate cuts from the Fed in the second half of this year, but are they right? UK inflation also fell, but with the headline still over 10%, and an uptick in average wages this week, the outlook for the UK remains uncertain.

Other key events from the past week

  • JPY: BoJ holds the line, January 18: The BoJ kept rates unchanged and the Yield Curve Control policy unaltered. This allowed the JPY to weaken, but initial dips in the JPY were bought as markets seem willing to test the BoJ’s resolve. How long can BoJ maintain its ultra-loose monetary policy?
  • USD: US PPI, Jan 18: The US PPI print was lower than expected with the headline falling to 6.2% y/y over 6.8% expected. The core was also lower than expected at 5.5%. Lower inflation readings provide further justification for STIR markets which see the Fed cutting interest rates twice this year.
  • GBP: UK Inflation, Jan 18: UK Inflation fell for a second month in December, but the headline is still above 10%. With the BoE’s current target of only 2% inflation STIR markets have increased the probability of a 50bps rate hike from the BoE’s next meeting in February.

Key events for the coming week

  • Earnings: Big name earnings ahead, January 24: IBM earnings are on Monday, Microsoft’s on Tuesday, Tesla’s after the close on Wednesday, and Apple’s are released on Thursday. Many analysts are expecting a short-term pop higher in US stocks if earnings are not as bad as investors have been fearing.
  • Timing dip buying? Check out how Seasonax can help timing entries in major indices.
  • CAD: Interest Rate Decision, Jan 25: Short-term interest rate markets are pricing in a 33% chance of no change in rates by the BoC next week and a 67% chance of a 25bps hike. Will the BoC surprise markets and keep rates unchanged?

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