Macroeconomics: The Day Ahead for 22 January

The US administration’s volte-face on Greenland will likely reduce a relatively busy schedule of data to little more than a ‘walk on’ role today. There are South Korea’s Q4 GDP (looking like a reactive correction to Q3 strength), Japan Trade (normalizing after a transitory boost from US trade deal), Australian Employment (raising risks of a near-term RBA rate hike) and UK PSNB (some relief for Reeves & Starmer, but January report will be key) to digest. US final Q3 GDP final, October and November Personal PCE and weekly jobless claims lie ahead. The December ECB minutes and Bundesbank monthly report feature on the events schedule, with Malaysia’s BNM and Norway holding rates as expected and Turkey’s TCMB seen continuing its policy with a further 150 bps cut to 36.50%.

The past week has been instructive in terms of markets’ reaction function to geopolitical risks, though in truth this has always been a good rule of thumb, namely that heated ‘diplomatic’ rhetoric, sanctions or tariffs etc will often elicit muted reactions, but the threat of some form of military conflict puts markets on high alert. The more poignant immediate question, given that Greenland is but one of many risks, is whether today’s modest knee-jerk recovery in a good many risk assets is justified. Be that as it may, markets will remain subject to the sort of whiplash volatility that has become a hallmark over the past year. The other question is whether the US administration’s deluge of measures over the past two months aimed at shoring up support for the Republican party at the mid-term elections has largely run its course, in no small part due to pushback either from administration advisers, or members of Congress, or whether this is just one battle in an ongoing war aimed at concerted disruption both domestically or internationally (more likely).

The immediate focus switches back to US Q4 earnings (above all tech sector), and above all to tomorrow’s Bank of Japan policy meeting, which is expected to see the BoJ keep rates on hold, but its messaging on the outlook for its key policy rate, and what it may signal on measures to curb JGB volatility will be key.