Morning wrap (31.01.2025)

​​​​​​Asia-Pacific indices are trading mostly in positive sentiment. The CH50cash index is gaining 1.50%, while the JP225 index is up 0.30% to 39,650 points. The Singaporean SG20cash index is rising by 1.50%, whereas the Australian AU200cash index is down by 0.20%.

Futures contracts for European indices indicate a higher opening for the cash session. The German DAX index is gaining 0.06%, holding above 21,800 points. The British UK100 index is up 0.02%, and the European EU50 index is rising by 0.05%.

The most important event of the day is the release of the Fed's preferred inflation measure, the U.S. PCE index. Expectations suggest that the core measure will remain unchanged at 2.8% year-over-year, while the headline measure is expected to increase from 2.6% to 2.8% year-over-year.

In the first part of the day, the New Zealand and Australian dollars are the strongest currencies among the G10 currencies, while the Japanese yen is the weakest.

Australia's Q4 Producer Price Index (PPI) came in at +0.8% quarter-over-quarter, below expectations of +1.0% and the previous reading of +0.9%. The PPI report aligns with expectations of the first rate cuts by the Reserve Bank of Australia (RBA). All four of Australia's largest banks are currently forecasting an RBA rate cut in February.

Consumer inflation in Tokyo increased by 2.5% year-over-year in January, in line with expectations (2.5%) and slightly above December’s reading (2.4%). This supports the Bank of Japan’s plan for further interest rate hikes.

Japan’s unemployment rate in December stood at 2.4%, lower than the expected 2.5% and also lower than the previous month's 2.5%. The job-to-applicant ratio was 1.25, meaning there were 125 job openings for every 100 job seekers.

Japanese retail sales increased by 3.7% year-over-year in December 2024, marking the 33rd consecutive month of growth. The data exceeded expectations of 3.1% year-over-year and the previous reading of 2.8% in November.

Japanese industrial production rose by 0.3% month-over-month in December but declined by 1.1% year-over-year.

Japan’s macroeconomic data came in quite strong, supporting the scenario of further interest rate hikes—with higher inflation in Tokyo and strong retail sales data. However, investor sentiment was ultimately influenced by a statement from the Bank of Japan (BOJ) Governor in Parliament. Ueda stated that inflation is mainly driven by cost-push factors, which should subside later this year.

Ueda also said that the BOJ will continue raising interest rates if the economy develops in line with forecasts and believes that markets understand this monetary policy stance.

Most investors expect the next debate on rate hikes to take place no earlier than July. Currently, there is a 72% probability priced in for another rate hike in that month.