Retail sales, PPI, Microsoft job cuts, IEA warns on oil - what's moving markets

© Reuters.

By Geoffrey Smith 

Investing.com -- The U.S. releases retail sales and producer price data for December that may or may not encourage more hopes of a pivot from the Federal Reserve. The Bank of Japan is refusing to pivot, however, despite all the bets that it will be forced to abandon its cap on bond yields. The Bank of England is likewise under pressure to tighten after strong inflation data for December. Microsoft is expected to announce a round of job cuts, and PNC Financial and JB Hunt report earnings. Oil hits its highest in over a month on forecasts that the world market will swing to a big supply shortfall by the end of the year. Here's what you need to know in financial markets on Wednesday, 18th January. 

1. Retail sales, PPI to feed Fed pivot narrative

The U.S. releases retail sales data for December at 08:30 ET (13:30 GMT), in the latest test of the ability of the U.S. consumer to keep spending despite the economic slowdown.

Analysts expect a 0.8% drop in sales values, which would translate into a slightly smaller drop in sales volumes given the 0.1% drop in consumer prices last month.

There will also be producer price inflation data for December, where a drop of 0.1% is expected. If confirmed, that would take the PPI to its lowest level in 18 months, adding to evidence that the expansion of profit margins which drove inflation during the pandemic is now rapidly reversing.

2. There is no Japanese word for 'pivot'  

The Bank of Japan kept its monetary policy unchanged, defying expectations that it would relax its cap on long-term bond yields.

Financial markets had bet heavily on the BoJ abandoning its policy of yield-curve control, and the decision prompted some rapid unwinding of speculative positions in the yen, whose rock-bottom interest makes it the funding currency of choice for many rate-based trades.

The dollar rose as much as 2% against the yen in the wake of the BoJ’s decisions but later gave up more than half of its gains to trade up 0.9% by 06:15 ET.  That suggests that the market still wants to test the BoJ’s resolve to defend an upper limit of 0.5% to 10-year Japanese bond yields. The BoJ has spent over $260 billion in December on keeping yields down, and now owns over half of the whole JGB market.

3. Stocks set to open marginally higher ahead of retail sales; Microsoft set to announce job cuts

U.S. stock markets are set to open fractionally higher, but futures are showing little conviction ahead of the retail sales report.

By 06:15, Dow Jones futures were up 22 points or less than 0.1%, while S&P 500 futures were up 0.1% and Nasdaq 100 futures were up 0.2%. The main cash indices had had a mixed day on Tuesday, with weak earnings from Goldman Sachs (NYSE:GS) dragging the Dow down by nearly 400 points.

Stocks likely to be in focus later include Microsoft (NASDAQ:MSFT), which reports suggest is likely to announce a round of job cuts in the course of the day. The Redmond-based giant reported its slowest revenue growth in five years in the third quarter. Its fourth-quarter results are due next week.

Earnings are due later from Charles Schwab (NYSE:SCHW), Prologis (NYSE:PLD), PNC Financial (NYSE:PNC) and JB Hunt (NASDAQ:JBHT), among others.

4. BoE under pressure to keep hiking after strong CPI data

The pound rose to test a seven-month high after U.K. inflation stayed stubbornly above 10% in December, keeping the pressure on the Bank of England to raise interest rates further.

Headline inflation stayed at 10.5%, with prices for food and services still rising strongly. The numbers validated anecdotal reports from the retail sector suggesting that spending has remained strong despite the ongoing cost of living squeeze.

By contrast, the euro fell after a Bloomberg report suggesting that various policymakers at the European Central Bank are looking to slow the pace of its rate hikes after its next meeting in February. Bank of France Governor Francois Villeroy de Galhau warned that the guidance for a 50 basis point hike in February is nonetheless still intact.

5. Oil hits six-week high after IEA forecasts deficit; API inventories due

Crude oil prices rose to their highest in over a month after the International Energy Agency predicted a sharp swing in the global supply-demand balance in the course of the year due to rebounding Chinese demand.

The IEA projects a surplus of around 1 million barrels a day in the first quarter of the year, swinging to a deficit of 1.6 million b/d in the third quarter that widens to 2.4 million b/d by the end of the year, despite record-high global oil supply.

By 06:30, U.S. crude futures were up 1.9% at $82.00 a barrel, while Brent was up 1.6% at $87.33 a barrel. The American Petroleum Institute’s weekly data on U.S. inventories are due at 16:30 ET.