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Housing prices in China fell further in December

Home prices in China fell 1.5% year-on-year in December, Refinitiv calculations of data from the National Bureau of Statistics showed.

Apartment prices decreased by 0.25% on a monthly basis in December, which was recorded at the same rate of decrease in November. Existing home prices fell 0.48% from a year earlier, slightly faster than the 0.44% decline recorded in November.

Separately, the People’s Bank of China on Friday hinted at upcoming changes to its “three red lines” for developers. The measures introduced in 2020 are aimed at reducing developer debt levels and reducing real estate financial risks, amid a broader push to limit house price speculation.

— Evelyn Cheng, Jihe Lee

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Japan’s wholesale prices are rising faster than expected

According to official data, Japanese producer or wholesale prices rose by 10.2% year-on-year in December.

That was higher than the 9.5% increase expected by economists polled by Reuters and was the third straight monthly increase.

National producer prices rose 0.5% month-on-month, also beating expectations for a 0.3% rise.

– Jihe Lee

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— Weizhen Tan

Next week. China’s industrial output, retail sales, GDP and the Bank of Japan rate decision

A range of economic data is expected for the week of January 16, including China’s industrial output and gross domestic product, as well as the Bank of Japan’s decision.

On Monday, South Korea will release revised trade data and Indonesia will release its trade balance for December. India is set to release its wholesale price index, which economists polled by Reuters expect to have weakened to 5.6% in December.

On Tuesday, China will release retail sales, industrial output, municipal fixed investment for December, as well as its gross domestic product for the quarter. On the same day, Singapore will publish its non-oil exports for the month of December.

The Bank of Japan will end its monetary policy meeting on Wednesday and is likely to keep interest rates extremely low. Investors will be looking for clues about who might succeed Governor Haruhiko Kuroda and a possible policy shift in the future.

Japan is scheduled to release vehicle orders for November on the same day, while Malaysia releases trade data for December.

Malaysia’s central bank will announce its monetary policy rate on Thursday, while Australia will release its employment figures.

China is due to release its key one- and five-year lending rates on Friday. Japan’s December consumer price index is also expected.

– Jihe Lee

Inflation forecasts are easing again, with traders fully pricing in a quarter-point increase in interest rates

The decline in consumer inflation expectations coincides with expectations that the Federal Reserve is likely to reduce the rate of interest rate hikes in a few weeks, and soon eliminate them.

A University of Michigan survey of consumer sentiment showed on Friday that the one-year inflation forecast fell to 4%, the third straight monthly decline and the lowest level since April 2021.

Meanwhile, traders have given a 94.2% chance of a 0.25 percentage point rate hike on Feb. 1, when the Fed’s next two-day meeting ends. That’s another smaller move than December’s 0.5 percentage point increase, which itself slowed from four straight 0.75 percentage point gains.

“Inflation expectations are well anchored and improving as price pressures ease across many sectors. The Fed is likely to hike by 0.25% at its meeting later this month,” said Jeffrey Roach, chief economist at LPL Financial. “We shouldn’t be surprised if the Fed starts talking about a pause in the near future.”

– Jeff Cox

Consumer sentiment rose for the second month in a row

The University of Michigan said its consumer sentiment index rose for the second month in a row, although it remained at a historically low level. The index rose to 64.6 from 59.7 in December. However, it remains about 4% below its year-ago level.

“Uncertainty about both measures of inflation expectations remains high, and changes in global factors in the coming months could lead to a reversal of recent improvements,” said Joanne Hsu, director of consumer research.

– Fred Imbert

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How will the Fed respond to falling inflation, CEO warnings of recession?

Thursday’s negative inflation reading, coupled with warnings of a mild recession from major banks on Friday, could signal that the Fed will soon hold off or even cut interest rates this year, but that would require another change in direction from the central bank.

“You don’t have to agree with the Fed’s policies to believe them,” said Lauren Goodwin, an economist and portfolio strategist at New York Life Investments.

Goodwin noted that the vast majority of the Fed’s voting members predicted a Fed funds rate of 5% or more this year at the last meeting. And given the concern some central bankers have expressed about the consequences of a pause too early, they may well hit that mark.

“With relatively high consistency and conviction, they said they were going to raise the policy rate 25 basis points higher than what the market was saying. And frankly, if we didn’t see a slowdown in inflation or a rapid collapse in economic growth. …I don’t think they intend to change their minds,” Goodwin added.

— Jesse Pound

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