• BoJ’s Kuroda: Inflation will steadily head towards the target Bank of Japan Governor Kuroda reiterated that the country’s underlying price trend is steadily improving towards the Bank’s target and blamed once again the fall in oil prices for the low level of inflation. What’s more, he said that he had no plan to ease policy further, but the central bank stands ready to adjust policy if needed. Gov. Kuroda maintained his optimistic view of the economy and that the tightening labour market should put upward pressure on prices. Even though the comments were nothing particularly new for the markets, JPY gained a bit as investors brush off the idea for further stimulus.
• USD/CAD soared to fresh multi-year highs around 1.4530, with no clear reason yet hitting the newswires. With oil prices steady around USD 30 per barrel this morning, there must be something beyond oil. Even though the move occurred in a very thin liquidity time, due to probably big stops being triggered, the fact that the pair has not reversed much of the sharp move keeps us skeptical about the huge spike. Although expectations for a BoC rate cut in the next few meetings are building up and could keep CAD weak, we would prefer to wait for today’s noise to clear before getting more confident on the next positive leg in USD/CAD.
• Today’s highlights: With not much on the calendar during the European day, the market will most likely be flow driven with some profit-taking in the final day of the week.
• The main event of the day will be the US retail sales data for December. The headline figure is expected to have remained flat from the previous month while core retail sales are expected to have slowed. On Wednesday, the US Beige book reported that most districts saw a moderate growth in consumer spending during the holiday season. Furthermore, since energy prices continued to fall throughout the month leaving consumers with more income to spend, we see the possibility for a higher-than-expected retail sales reading. This could encourage USD-bulls to add to their positions. The US PPI data for the same month are also to be released. Headline PPI is forecast to have fallen, a turnaround from November. The core figure, which excludes the effects of food and energy prices, is expected to have slowed. These data will be closely watched as indicators for any surprises in the CPI prints coming out next week. The headline CPI rate is currently at +0.5% yoy and is expected to have accelerated to +0.8% yoy in December. Industrial production for December is forecast to have continued falling, albeit at a slower pace than previously. This will be the 4th consecutive month of a fall in the figure, reflecting weakness in the construction and manufacturing sectors. Bearing in mind that the ISM manufacturing PMI for the same month came in below expectations and remained below its 50 line, the possibility for a positive surprise in the IP figure is low. The Empire State manufacturing index is expected to show that business conditions for New York’s manufacturers continued to deteriorate in January, but by less than previously. The preliminary U of M consumer sentiment index for January is also coming out and is forecast to increase. The report comes along with the surveys of 1-year and 5-to-10 year inflation expectations, though no forecasts are available.
• We have two speakers scheduled on Friday’s agenda: New York Fed President William Dudley and Dallas Fed President Robert Kaplan speak.