Market Update – 24th January 2024.

24th January 2024

Following Japan’s core CPI coming in for December at 2.3% – in line with market expectations and above their 2% target – the Bank of Japan revealed on Tuesday that it would be leaving interest rates unchanged for the time being. The decision not to exit the Negative Interest Rate Policy came after a two-day meeting in which policymakers maintained the short-term rate target at -0.1% and their yield curve control policy at 1%. Explaining their decision, Governor Ueda pointed in part to that recent stable growth in service sector prices suggest that current levels of inflation may be achieving an element of sustainability. However, he also noted that they would need to see further stability in the figures and proof of solid wage growth in order to begin loosening monetary policy. Meanwhile, markets, pricing in a rate hike as soon as the Bank’s next meeting, saw the Yen enjoy a rise against its peers following the news.

Over in the Eurozone, it was revealed on Monday that consumers lost some confidence in the EU economy in January. In terms of the consumer confidence indicator, the scale ranges from -100 to 100, with 100 illustrating that the consumer is very confident about the region’s current economic and financial situation and -100 indicating that they have low confidence. The flash estimate was -16.1, falling from -15.0 in December.

On Monday, The People’s Bank of China elected to leave loan rates unchanged. Their one-year loan prime rate (LPR) will remain the same at 3.45%, and the five-year rate (which is used as a basis for mortgages) will stick at 4.20%. Underscoring the importance of not over-reacting to initial headline news, markets initially reacted relatively negatively to the announcement, however they soon turned around following reports of more stimulus to bolster the region’s previously slow economic momentum that includes aims to get about 2 trillion yuan through off-shore entities.

Closely watched this week will also be the ECB’s decision rate on Thursday at their first meeting of the year. Their objective is to wrangle inflation back down to their 2% target but without triggering a recession. Given that core inflation fell in December (although headline inflation ticked up), combined with that recent industrial production data for the region was underwhelming, many are pricing in rate cuts in Spring of this year.

Still to come this week we also have a host of PMI data from the UK, US and Eurozone, US GDP and PCE figures.

Nicola Tune, Portfolio Specialist