Take Five: And we’re off

LONDON (Reuters) -Big central banks are kicking off their first meetings of 2024 with the Bank of Japan and European Central Bank gathering in coming days, while in emerging markets Turkey takes centre stage.

Earnings season and a snapshot of how business activity is holding up in January as turmoil in the Red Sea wreaks havoc on supply chains are also due.

Here’s a look at the week ahead in world markets from Kevin Buckland in Tokyo, Yoruk Bahceli in Amsterdam, Lewis Krauskopf in New York, Amanda Cooper in London and Ezgi Erkoyun in Istanbul.

1/ ECB VS MARKETS

The ECB meets on Thursday and for all the pushback against rate-cut speculation, traders have merely delayed bets on a first move by a month to April. Markets still expect five cuts this year.

Policymakers are in no hurry to signal cuts and even some doves say it’s too early to discuss them. Expect more pushback from ECB boss Christine Lagarde, who warned traders pricing too many cuts would not help the ECB fight inflation.

Euro zone inflation rose in December and wage growth is still too high for its liking. While it’s too early for a pivot, the ECB has halted rate hikes and clarified how it will wind down its pandemic-era bond-buying scheme.

And Lagarde could be pushed on the impact of supply chain disruptions in the Red Sea on inflation.

2/ BATTERED YEN BULLS

Just how much the frenzy for an imminent end to Bank of Japan stimulus has quickly become a frustration is playing out in currency markets.

The yen has tumbled as much as 5.6% this month alone to beyond 148 per dollar. That move has happened more quickly than December’s yen bounce to five-month peaks near 140 from a more than one-year trough near 152 in mid-November.

A New Year’s Day earthquake on Japan’s west coast cleared any vestigial bets for an exit from negative rates at the BOJ’s two-day meeting starting on Monday.

Those wagers had already been tempered by dovish BOJ commentary, while recent data suggests a cooling of inflation without any central bank assistance.

Dollar/yen’s approach to 150 could trigger some jawboning from Tokyo. A weak yen is unpopular with voters, who already take a poor view of Prime Minister Fumio Kishida’s administration.

3/ PUSH AND PULL

As some Federal Reserve policymakers push back on market rate-cut bets, a key U.S. inflation gauge on Thursday should shed some light on the timing of such a move.

December’s personal consumption expenditures (PCE) reading comes after the price index increased 2.6% in the 12 months to November and monthly prices fell for the first time in more than 3-1/2 years. Money markets price a 61% chance of a 25 bps March cut versus a 77% chance a week ago.

Higher-than-expected December retail sales numbers have also raised doubts over whether the Fed will be able to cut as early as March, as the central bank continues to wrestle inflation down from the 40-year highs hit in 2022. U.S. corporate earnings are also on the must-watch list, including Tesla (NASDAQ:), Netflix (NASDAQ:), 3M and Intel (NASDAQ:).

4/ FLASH IN THE PAN

Investors are betting heavily on the global economy coasting gently to a recession-free soft landing, along with rate cuts this year.

The Jan. 24 flash Purchasing Managers’ Index (PMI) readings will give a sense of how business activity, in contraction territory across much of the world, has held up.

New orders and hiring intentions will come under scrutiny as they are two of the more forward-looking components. New orders have trends lower everywhere, often a sign of firms preparing for tough times ahead – at odds with the rosy outlook in financial markets.

On earnings, it’s a big week for European tech, with ASML (AS:), Logitech (NASDAQ:) and SAP reporting, as well as luxury powerhouse LVMH.

5/ ONE LAST PUSH

Turkey watchers are keen to see what size rate hike the central bank will deliver on Thursday, with a bigger-than-expected rise in the minimum wage, pre-election spending and a sliding lira keeping risks to the projected disinflation path well and truly alive.

As part of an economic policy U-turn, Turkey’s central bank has jacked up rates to 42.5% from 8.5% since June to contain inflation. In December, the central bank said it was set to complete the tightening cycle as soon as possible, though Governor Hafize Gaye Erkan has pledged to maintain tight policy as long as necessary.

Policymakers already downshifted tightening prospects last month, saying rates were close to a level that would keep disinflation on track. Economists expect inflation to hit over 70% by mid-year and decline to around 40% by year-end.

South Africa’s central bank also meets on Thursday and is expected to keep rates unchanged. Governor Lesetja Kganyago says disinflation has begun.

(Graphics by Prinz Magtulis, Pasit Kongkunakornkul, Kripa Jayaram and Sumanta Sen; Compiled by Dhara Ranasinghe; Editing by Karin Strohecker and Alex Richardson)

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