Asian equity markets are mixed this morning with Japan down but most others up. Chinese President Xi has warned that traveling over the lunar new year holiday may further spread the latest outbreak of Covid in China. The US government is expected to reach its debt ceiling limit possibly as early as today after which it can longer issue new Federal debt. It will take contingency measures near term but is expected to run out of leeway by the summer unless Congress agrees to raise the ceiling.
The Norwegian central bank is expected to leave interest rates unchanged at its latest policy update following further signs in the latest inflation data that price pressures are cooling. The Norges Bank was one of the first to raise interest rates at the start of the current hiking cycle in late 2021 and now seems set to be one of the first to stop tightening. However, one last hike of 25 basis points is currently still generally expected in March.
December US housing starts are forecast to show another large fall. Some of that will be a result of the big pre-Christmas storm but much of it will reflect underlying weakness due to higher interest rates. Also after a much bigger than expected fall in the January New York Federal Reserve manufacturing survey, the equivalent for the Philadelphia area will be watched closely. In Japan an expected further rise in CPI inflation this evening may add to concerns that Bank of Japan monetary policy is set to become more hawkish.
European Central Bank President Lagarde is scheduled to speak at the Davos conference today. She is likely to reiterate previous cautious guidance that inflationary pressures are still too high and so Eurozone interest rates have further to rise. Several US Federal Reserve policy makers are also set to speak, including Fed Vice Chair Brainard. She is generally considered to be one of the more dovish members of the interest rate setting committee so it will be interesting to see whether there are any signs that her support for further hikes is wavering.
Early Friday, UK data for retail sales and UK consumer confidence will provide further evidence on the impact of cost-of-living increases on consumer activity. Retail sales may have increased in December, with the cold weather snap and the World Cup potentially providing a boost. GfK consumer confidence may have improved for a fourth month in a row to -40 in January. The context, though, is that retail sales are still likely to have contracted during Q4 for the sixth successive quarter, and consumer confidence remains at historically very weak levels.
US bond yields fell sharply yesterday after weak economic data suggested that the Fed may soon stop raising interest rates. UK gilt yields also declined albeit more modestly. In currency markets, the main crosses were little changed but the Aussie dollar declined after weaker-than-forecast labour market data.
