Daily Brief, January 30, 2023: The Week of Interest Rate Decisions.

The Awaited Week Has Come.

Investors and traders have been awaiting this week since the beginning of this year when three major central banks will be announcing their interest rate decisions. The US Federal Reserve Open Committee will announce its interest decision on Wednesday, February 1st, while the European Central Bank and the Bank of England will announce their decisions on February 2nd.

Moreover, other significant economic data are expected to be released, too, with consumer confidence, unemployment rates, and Non-Farm Payrolls from the United States. The European Commission will release the Eurozone consumer confidence, while the Eurostat will announce the Gross Domestic Product and the consumer price index in the Euro area.

Japan’s Nikkei Trailed Wall Street and Closed High.

The Nikkei index ended trading on Monday, January 30, at the highest level in more than a month, tracking the impact of gains on Wall Street in the previous session. However, the gains were limited due to the anticipation of the Federal Reserve Meeting and the announcement of Japanese companies’ earnings.

The Nikkei rose 0.19%, closing at 27,433.40 points, its highest level since December 16, after the index fell for a short period. The Topix index fell slightly, by 0.01%, to record 1982.40 points.

Shigetoshi Kamada, director of research at Tachibana Securities, said the week was full of market-moving events, prompting investors to be more cautious. He explained, “I am not sure this momentum will continue this week. Investors are cautious and may sell stocks to take profits before the US Federal Reserve meeting and the release of US jobs data, in addition to the Japanese companies’ earnings and business results announcements.”

Robotics manufacturer FANUC jumped 3.58% after the company raised its annual operating profit forecast and announced a 5-to-1 stock split. Shin-Etsu Chemical Co rose 5.08%, its fourth consecutive session higher, as it raised its operational yearly profit forecast. Tokyo Electron increased by 0.68%, Advantest declined by 0.32%, and Nikon rose slightly by 0.16%.

McCarthy: A Spending Cut in Return for Raising the Debt Ceiling.

Republican US House Speaker Kevin McCarthy announced that he would discuss Wednesday with President Joe Biden how to avoid the United States defaulting on its debt. However, he stressed that the President should reconsider his decision to refuse to cut spending in return for raising the public debt ceiling.

“I want to find a reasonable and responsible way to raise the public debt ceiling,” McCarthy said in a statement to CBS on Sunday while controlling what he described as “runaway spending” by Congress. The talks will be McCarthy’s first with “Biden” since his election as Speaker of the House this month.

Raising the public debt ceiling allows the government to cover expenditures, which is often a standard measure. But members of the new Republican majority in the House of Representatives are threatening not to ratify the action, which raises the public debt ceiling currently at $31.4 trillion. Biden has previously declared that this issue is not negotiable.

“Biden” accuses the Republicans of taking “the economy hostage,” and the White House refuses even to put Wednesday’s meeting in the category of negotiations. Biden’s official schedule shows he will only discuss “a range of issues” with McCarthy on Wednesday.

White House spokeswoman Karen Jean-Pierre recently said that raising the public debt ceiling “is the duty of this country and its leaders to avoid economic chaos.” And she added, “Congress has always done that, and the president expects (the council) to do his duty again,” stressing that the matter is “non-negotiable.” This position predicts a sharp clash the country may witness in the coming weeks.

US Treasury Secretary Janet Yellen warned earlier that a US default would cause a “global financial crisis” and would increase the cost of borrowing and undermine the dollar’s position as an international reserve currency.

Last week, the US Treasury Department began taking “extraordinary measures” to reduce outstanding debts subject to the specified ceiling and to avoid default. Treasury warned that the available tools would help only for a limited period, likely at most six months.

While McCarthy asserted that the country “will not default,” he stressed that the Democrats bear responsibility for spending, which reached its highest levels in the first two years of the Biden period. In his statement to CBS, he stressed that “this path cannot be continued.”

Democratic Representative from Washington State, “Adam Smith,” responded that Republicans have not clarified what sectors they intend to cut spending in. He said in a statement to the “Fox News” news network: “At present, the Republicans have no plan,” adding: “Their plan, led by the extremists in their party, is to complain about spending and not to raise the public debt ceiling without putting forward a plan specifying where we will make the cuts.” He continued, “They give us a choice, and then we can argue.”

But McCarthy expressed optimism that an agreement could be reached to prevent the country from defaulting. He said he wanted to meet with “Biden” and “reach an agreement that enables us to move forward in putting the country on a path of balance.” He added, “I think the president would be willing to agree.”

The White House spokeswoman indicated that the meeting between “Biden” and “McCarthy” will also touch on the President’s efforts to reduce the US deficit “by paying the richest and big companies their fair shares” instead of some Republicans’ proposal to cut politicized social spending.

The Dollar Stabilizes Before a Series of Central Banks Meetings.

The dollar stabilized on Monday, shifting away from its lowest level in 8 months before a series of central banks meetings this week, including a meeting of the Federal Reserve. Traders are heavily focusing on directing the path of higher interest rates. The dollar index rose 0.03% to 101.92, moving away from the 8-month low it hit last week at 101.50. While it is still on track to record a fourth consecutive monthly loss of 1.5%, weighed down by expectations that the Federal Reserve is nearing the end of its interest rate hike cycle and that rates will not rise as previously.

The pound sterling rose 0.01% to 1.24005 against the dollar, while the New Zealand dollar rose 0.09% to 0.65000 dollars.

The Federal Reserve is expected to raise interest rates by 25 basis points, while the European Central Bank and the Bank of England are likely to raise interest rates by 50 basis points each.

The euro recorded an increase of 0.03% to 1.08705 against the dollar and is on its way to achieving a monthly gain of about 1.5%, to record an increase for the fourth consecutive month.

Oil Rises Following the Drone Attack in Iran.

Oil prices jumped at the beginning of the Asian trading session today, supported by uncertainties in the Middle East after a drone attack in Iran.

Moreover, Beijing pledged at the weekend to promote a recovery in consumption that will support fuel demand. Brent crude futures rose 54 cents, or 0.6%, to $87.20 a barrel, while US crude recorded $80.22 a barrel, up 54 cents, or 0.7%.

A US official said on Sunday that Israel appeared to be responsible for the drone attack on a military factory in Iran. An oil official said any escalation in Iran could disrupt the flow of crude oil.

Ministers from the Organization of the Petroleum Exporting Countries (OPEC) and allies led by Russia, known as OPEC+, are unlikely to adjust their current oil production policy when they hold their virtual meeting at the beginning of February. However, indications of higher crude exports from Russia’s Baltic ports in early February caused Brent and US crude to incur their first weekly loss in 3 weeks last week.

Disclaimer: This article is not investment advice or an investment recommendation and should not be considered as such. The information above is not an invitation to trade and it does not guarantee or predict future performance. The investor is solely responsible for the risk of their decisions. The analysis and commentary presented do not include any consideration of your personal investment objectives, financial circumstances, or needs.

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