BOJ mulls inflation cut; Oil surges amid Mideast crisis

Yen reacts to BOJ's forecast revision, as WTI crude jumps on geopolitical tensions and US CPI data

By Ahmed Azzam | @3zzamous | 12 January 2024

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  • BOJ officials consider revising inflation forecasts downward for the upcoming fiscal year

  • WTI crude futures see over 2% rise amidst escalating Middle East conflicts

  • US inflation report dampens early Fed rate cut expectations

  • ECB's Lagarde comments on Trump's potential return and policy impacts

  • Big bank earnings in focus today

BOJ's inflation and growth forecast revision

Bank of Japan (BOJ) officials are expected to discuss cutting their inflation and growth forecasts in their upcoming meeting. The consideration includes lowering the consumer price outlook to around 2.5% for the fiscal year starting April. This potential revision has led to a weakening of the yen and contributed to a rise in Asian shares, particularly in Japan.

WTI crude reacts to Middle East tensions

WTI crude futures jumped more than 2% toward $74 per barrel, fueled by deepening geopolitical tensions in the Middle East. The crisis was exacerbated by Iran's capture of an oil tanker off Oman and US-led coalition attacks on Houthi targets in Yemen. These developments have introduced a risk premium into oil prices, offsetting the impact of Saudi Arabia's earlier price cuts.

US inflation data and Fed rate cut outlook

A hotter-than-expected US consumer inflation report has tempered expectations for an early Federal Reserve rate cut, potentially delaying it until after March. This adjustment in market expectations comes despite encouraging signs from the inflation data.

Lagarde on Trump's potential return and ECB policy

European Central Bank (ECB) President Christine Lagarde expressed concerns about the implications of Donald Trump's potential return to power in 2025, citing divergences in trade, NATO commitments, and climate change policies. Lagarde also stated that the ECB would start lowering rates once it sees inflation steadily returning to its 2% target.

Bank earnings

Major US banks, are set to report earnings, with investors keenly observing the implications of the Fed's potential easing on their loan portfolios and deposit rate outlooks. This follows a 23% gain in a gauge of US lenders last quarter, outperforming the broader market.