Asian equity markets are mixed with Chinese and Japanese indices down but most others up. Fed Chair Powell in an interview largely repeated his comments of last week that interest rates have further to rise. However, markets seemed relieved that he was not more hawkish in the wake of last Friday’s very strong employment report. US President Biden in his State of the Union address called on Congress to raise the debt ceiling to avoid a default.
There are no data releases in the UK or the Eurozone for the rest of today and also nothing in the US. However, late tonight money supply data will be released for Japan. There is ongoing speculation that the long period of very loose Japanese monetary policy will come to an end this year. Today’s money supply data is unlikely to provide any new insight on this but the identity of the next Bank of Japan Governor just might.
Current BoJ Governor Kuroda, who is set to end his term in April, continues to strongly advocate the need for ultra-loose policy despite the recent move in inflation above the BoJ’s target for the first time in many years. He regards the recent rise as possibly temporary but some evidence, including an acceleration in wages, suggests it may be more permanent. So a big question is whether his successor will have a different view? His identity is yet to be announced but speculation is centring on Masayoshi Amamiya, one of Kuroda’s deputies. He would be seen as a continuity candidate, whereas an alternative may raise the odds on a policy shift. The outcome could be highly important for financial markets as it may trigger further volatility in the yen.
Several US Federal Reserve policymakers are scheduled to speak today. Yesterday Fed Chair Powell again said it was premature to think enough had been done to bring inflation back down to the Fed’s 2% target. In the wake of last week’s much stronger than expected employment report, he continued to warn that a tight labour may still push up wages. Today’s speakers seem likely to support those comments and signal the likelihood of further US interest rate rises.
Meanwhile, the Bank of Canada will publish its first “summary of deliberations” at a policy meeting. These seem set to be akin to the minutes published by other central banks. They may provide more detail on the BoC’s latest decision to raise interest rates and its guidance that it will now pause. It will also be interesting to see if anything is said about market expectations of rate cuts in the second half of the year.
Bond yields in the US and the UK rose again yesterday as markets remained unsure on the outlook for interest rates. In currency markets, the US dollar was little changed as it consolidated after the rebound of the last few days. However, markets will be warily watching comments by Fed officials today for their reaction to Friday’s strong payrolls report.
