Investing.com-- Traders were seen pricing in a greater chance that the Federal Reserve will keep interest rates on hold in March, the CME Fedwatch tool showed on Monday, signaling a drastic shift from earlier expectations for a rate cut.

The tool showed Fed Fund futures pricing in a 50.7% chance the central bank will keep its benchmark interest rate in a band of 5.25% to 5.50%, up sharply from a 19% chance seen last week.

Expectations for a chance of a 25 basis point cut- which were running high for nearly two months- now stood at 48.1%, down sharply from the 76.9% probability seen a week ago.

The shift in expectations for a rate cut came amid a slew of strong U.S. economic readings, with retail spending remaining strong, inflation inching higher and the labor market continuing to run hot.

A chorus of Fed officials also downplayed expectations for an early rate cut, stating that resilience in the U.S. economy gave the bank more impetus to keep rates higher for longer. They also noted that consumer inflation remained well above the Fed’s 2% annual target, and that rate cuts would only come when inflation was moving closer to the target.

"While I think it’s appropriate for us to look forward and ask when would policy adjustments be necessary, so we don’t put a stranglehold on the economy, it’s really premature to think that that’s around the corner," San Francisco Fed President Mary Daly said in an interview on Friday.

Atlanta Fed President Ralph Bostic also said last week that he expects rate cuts to begin only from the third quarter. Both Bostic and Daly are part of the rate-setting committee this year.

Comments from Fed officials came just ahead of the media blackout period before the central bank’s January meeting. The Fed is widely expected to keep rates steady at 23-year highs when it meets next week, with the CME tool pointing to a 97.4% chance for a hold.

Expectations of early interest rate cuts by the Fed had driven a stellar rally in global financial markets towards the end of 2023. But this rally had somewhat slowed in recent weeks, in the face of higher-for-longer rates.

The dollar had surged to an over one-month high last week on the shifting expectations, while 10-year Treasury yields broke back above the 4% level.

While the Fed signaled in its December meeting that it will consider cutting interest rates in 2024, it gave scant cues on the timing and scale of the potential cuts. The central bank had also warned that any signs of sticky inflation and labor market strength will keep rates higher for longer.

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Investing.com-- The People’s Bank of China kept its benchmark loan prime rate at record lows on Monday as widely expected, indicating that the central bank has limited headroom to further loosen monetary conditions and buoy an economic recovery.

The PBOC left its one-year LPR at 3.45%, while the five-year LPR, which is used to determine mortgage rates, was left unchanged at 4.20% in the PBOC's first rate decision of 2024.

Both LPR rates were at historic lows after a series of cuts over the past four years, as the PBOC loosened monetary policy in the face of slowing economic growth.

Monday's move was largely in line with market expectations after the central bank unexpectedly kept its medium-term lending rates on hold earlier in January, although it also maintained its near record-high pace of liquidity injections.

The LPR is determined by the PBOC based on considerations from 18 designated commercial banks, and is used as a benchmark for lending rates in the country.

The PBOC had cut the rate further into record-low territory over the past two years, as it struggled to further stimulate Chinese lending conditions and support an economic rebound. But its measures have had little effect so far, with recent data confirming that a post-COVID economic rebound largely failed to materialize in 2023.

China’s gross domestic product grew less than expected in the fourth quarter, and also barely edged past a 5% government target for the year, as weakening export demand added to economic pressure from sluggish domestic spending and investment.

The PBOC has also repeatedly signaled reluctance towards cutting the LPR further, stating that such a move could cause more weakness in the yuan and also destabilize the banking sector.

With the central bank’s liquidity measures providing little support to the economy, investors have ramped up calls for more targeted, fiscal measures from Beijing. But such measures also appear unlikely as China grapples with high levels of government debt.

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Investing.com -- Earnings season ramps up, big central banks kick off their first meetings of 2024 and PMI data is set to show how the global economy is faring at the start of the year. Here's what you need to know to start your week.

US data

While slowing inflation has fueled expectations for the Federal Reserve to start cutting rates this year some policymakers have pushed back on rate cut bets. A key US inflation reading on Thursday will be closely watched for fresh insights on the future path of interest rates.

December's personal consumption expenditures data comes after the price index increased 2.6% in the 12 months to November and monthly prices fell for the first time in more than three and a half years.

The government is to release data on fourth quarter GDP on Wednesday, which is expected to come in at 2.0% after a 4.9% increase in the prior quarter.

Fed officials will be observing the traditional blackout period ahead of their upcoming policy meeting on Jan. 30-31.

Earnings ramp up

Earnings season is ramping up with investors looking ahead to results from some big names including Netflix (NASDAQ:NFLX), which reports on Tuesday, followed by Tesla (NASDAQ:TSLA) on Wednesday, as well as 3M (NYSE:MMM) and Intel (NASDAQ:INTC).

The S&P 500 posted a record high close on Friday for the first time in two years, fueled by a rally in chipmakers and other big tech stocks but could lose momentum if earnings results over the next few weeks fail to justify relatively high valuations.

"This new record level of the S&P 500 is sustainable as long as earnings meet expectations," Steve Sosnick, Chief Strategist at Interactive Brokers told Reuters.

"If, on the other hand, we find out that the market has either gotten ahead of itself ... or we get guidance from some of these companies that doesn't match the bullish sentiment that's being priced into them, that can be a real risk.”

It’s also set to be a big week for European tech, with ASML (AS:ASML), Logitech (NASDAQ:LOGI) and SAP (NYSE:SAP) reporting, as well as luxury powerhouse LVMH (EPA:LVMH).

Central bank meetings

The European Central Bank holds its first policy meeting of 2024 on Thursday against a background of rate cut speculation, with markets pricing in five rate cuts this year.

Some policymakers say markets are getting ahead of themselves and President Christine Lagarde has warned that pricing too many cuts would not help the bank fight inflation.

The Bank of Japan is to conclude its latest policy meeting on Tuesday with markets expecting no change but with investors on the lookout for any indications on a possible exit from negative interest rates later in the year.

Meanwhile, the Bank of Canada is widely expected to keep interest rates on hold at 5% on Wednesday for what would be a fourth straight meeting.

PMIs

Investors are betting heavily on a so-called soft landing for the global economy, along with rate cuts later this year.

Wednesday’s flash Purchasing Managers' Index readings for the Eurozone, UK and US will give a sense of how business activity, in contraction territory across much of the world, has held up at the start of the year.

New orders and hiring intentions will come under scrutiny as they are two of the more forward-looking components. New orders have trends lower everywhere, often a sign of firms preparing for tough times ahead - at odds with the rosy outlook in financial markets.

Oil prices

Oil prices settled slightly lower on Friday but recorded a weekly gain as Middle East tensions and disruptions to oil output offset concerns about the Chinese and global economies.

For the week, Brent gained about 0.5% while U.S. crude rose over 1%.

The International Energy Agency last week raised its 2024 global demand forecast, but its projection is half that of producer group OPEC. The Paris-based agency also said that - barring significant disruptions to flows - the market looked reasonably well supplied in 2024.

"The forecast for global oil demand growth remains unclear, with stakeholders and research institutions providing widely differing projections," analyst Bjarne Schieldrop of SEB told Reuters.

--Reuters contributed to this report

By Jonathan Saul

LONDON (Reuters) - Countries in the Red Sea region need to enhance security to protect seafarers at risk as attacks on merchant shipping worsen, industry officials said on Thursday.

Attacks on ships by Yemen's Iran-allied Houthi militia since November have slowed trade between Asia and Europe and alarmed major powers in an escalation of the war between Israel and Palestinian Hamas militants in Gaza.

Seafarers were innocent victims, Arsenio Dominguez, Secretary-General of UN shipping agency the International Maritime Organization, told a meeting with shipping industry officials on Thursday, adding that freedom of navigation must be upheld, to guarantee the flow of goods by sea.

Stephen Cotton, General Secretary of the International Transport Workers' Federation (ITF), the leading union organisation for seafarers, said the body was "very concerned", adding "seafarers' safety must be the number one priority".

The Houthis are holding 25 crew members from the Galaxy Leader, which was hijacked by the militant group on Nov. 19.

Cotton said the Galaxy Leader's crew must be unconditionally released.

In a positive step, the Indian Navy said on Thursday it had rescued the crew of a U.S.-owned vessel in the Gulf of Aden after a Houthi attack.

In December areas deemed warlike and high risk were extended into the southern area of the Red Sea as part of negotiated arrangements between seafarers and commercial shipping companies, known as the IBF.

Lawyers said the measure increased protection for seafarers.

"This designation triggers increased costs for shipowners, as seafarers covered by IBF agreements are entitled to double their basic pay, along with double compensation for death or disability," David Ashmore, employment lawyer at global law firm Reed Smith, said.

Some 12% of global trade is estimated to pass through the Red Sea.

By Susobhan Sarkar and Indradip Ghosh

BENGALURU (Reuters) - Bank Negara Malaysia (BNM) will leave its overnight policy rate (OPR) unchanged at 3.00% on Jan. 24 and hold it there until at least end-2025 as price pressures are expected to increase and growth remains steady, a Reuters poll of economists showed.

That outlook was despite inflation easing to 1.5% in November - its lowest since March 2021 - and remaining far below the government's estimate of 3%-4% for 2023, partly due to BNM hiking rates by a cumulative 125 basis points between May 2022 and May 2023.

With the Malaysian ringgit up nearly 3% against the U.S. dollar so far in 2024 as markets expect the U.S. Federal Reserve to cut rates aggressively this year, the urgency for policy easing by the BNM will be limited in the near term.

All 28 economists in the Jan. 12-18 Reuters poll predicted Malaysia's central bank would keep its key interest rate at 3.00% on Jan. 24 for the fourth consecutive meeting.

Survey medians showed the central bank would keep the rate untouched until at least 2026 and only four of 26 economists expected at least one cut this year.

"The BNM sees policy as already slightly accommodative. It would likely take a material growth slowdown to nudge the bank into making policy more supportive," said Alex Holmes, lead economist, Oxford Economics.

The economy which expanded 3.3% annually in Q3, 2023 was expected to grow 4.5% and 4.6% this year and next, respectively, higher than 4.1% last year.

Meanwhile, inflation was forecast to spike again in the coming quarters and average 2.5% in 2024 and 2.4% in 2025.

"Inflation is likely to creep up due to recently announced government measures, such as a 2% services tax hike, removal of subsidies for selected food and energy items...and a 5-10% luxury goods tax," said Vincent Loo, senior economist, KAF Research.

"The collective impact of these measures is likely to drive inflation higher this year, thereby constraining the potential for policy easing by BNM."

(For other stories from the Reuters global economic poll:)

By Satoshi Sugiyama

TOKYO (Reuters) - Core consumer inflation in Japan's capital Tokyo in January likely fell below 2% for the first time since May 2022, a Reuters poll of economists showed on Friday, reinforcing the view that price pressures are easing.

The core consumer price index (CPI) in Tokyo, a leading indicator of nationwide inflation trends was expected to have climbed 1.9%, according to a median estimate of 18 economists, attributed to a slower increase in energy and food prices. That would follow a 2.1% jump in December.

"The rate of increase in the core index is expected to slow further as food price hikes have subsided and the upward contribution of accommodation prices is expected to contract," said Takumi Tsunoda, senior economist at Shinkin Central Bank Research Institute.

Japan's December core inflation was above the Bank of Japan's 2% target at 2.3% growth but its pace slowed for a second straight month, government data showed on Friday.

Meanwhile, the poll estimated Japan's exports likely swung back to expansion in December, rising 9.1% from the same month a year earlier. That compared with a 0.2% contraction in November.

December imports are seen down 5.3% from a year earlier after a 11.9% decrease in the previous month, resulting in a trade deficit of 122.1 billion yen ($824.05 million), the poll showed.

The government will release the Tokyo CPI data on Jan. 26 at 8:30 a.m. Japan time (Jan. 25 at 2330 GMT) and trade data on Jan. 24 at 8:50 a.m. Japan time (Jan. 23 at 2350 GMT).

($1 = 148.1700 yen)

MOSCOW/WASHINGTON (Reuters) -Russia on Thursday publicly rejected U.S.-Russian arms control talks for now because of U.S. support for Ukraine, a stance Washington said cast doubt on Moscow's openness to a successor to the last treaty limiting their strategic nuclear arsenals.

Russian Foreign Minister Sergei Lavrov told reporters that Washington had proposed separating the issues of Ukraine, which Russia invaded in 2022, sparking a nearly two-year war, and the resumption of "strategic stability" talks on arms control.

But Lavrov said the U.S. proposal was unacceptable to Russia because of the West's backing for Ukraine and accused the West of conducting a "hybrid war" against Moscow. However, he did not rule out the possibility of future arms control talks between the two, which possess the world's largest nuclear arsenals.

"We do not see the slightest interest on the part of either the United States or NATO to settle the Ukrainian conflict and listen to Russia's concerns," Lavrov told a news conference, though he left the door open to Moscow's position evolving.

"We do not reject this idea for the future, but we precondition this possibility on the abandonment by the West of its policy of undermining and not respecting Russia’s interests," he said.

In Washington, a senior White House official said Russia may change its mind as the February 2026 expiration of the New START treaty approaches, though he said there were no guarantees. The treaty limits deployed strategic nuclear arsenals of both nations.

"We have to take Russia at its word ... They're refusing to engage bilaterally on these issues," Pranay Vaddi, senior director for arms control at the White House national security council, said in response to a question at a think-tank event on Thursday. "It casts some doubt on Russia's willingness to entertain a conversation about a New START follow-on or returning to New START compliance."

"I think that they will want to come back to the table at some point, and ideally before expiration, but Russia could also be unpredictable," Vaddi added.

New START's lapse would leave the two nations with no nuclear arms agreement at a time when tensions between them are at the highest point since the Cuban missile crisis of 1962.

Lavrov accused the West of pushing Ukraine to use increasingly long-range weapons for strikes deep inside Russia. Such strikes have intensified in recent weeks, including an attack on the southern city of Belgorod that killed 25 people on Dec. 30.

Lavrov did not provide evidence for his assertion that the West was encouraging Ukraine to carry out such strikes but accused the United States of seeking military superiority over Russia.

Signed in 2010, the New START treaty caps the number of strategic nuclear warheads that the countries can deploy. Under its terms, Moscow and Washington may deploy no more than 1,550 strategic nuclear warheads and 700 land- and submarine-based missiles and bombers to deliver them.

By Tom Westbrook

SINGAPORE (Reuters) - The dollar headed for a second weekly gain in a row on Friday on signs of resilience in the U.S. economy and caution about rate cuts from central bankers.

Weekly gains on the risk-sensitive Australian and New Zealand dollars of 1.7% and 2.1% are set to be the largest since November and June respectively. Markets price a 57% chance of a U.S. rate cut in March, down from 75% a week ago.

The dollar index is up 0.9% to 103.4 on the week and at 148.12 yen the dollar is up almost 5% on the Japanese currency this year as confidence that the Bank of Japan (BOJ) is about to hike rates has also been rattled.

Data on Friday showed Japan's core inflation slowed to 2.3% in the year to December, its lowest annual pace since June 2022 - seemingly vindicating policymakers' wait-and-see approach.

"The market's realisation that rates hikes will not be easy for the BOJ in the coming months and the coincident repricing of Fed rate cut risks have already been reflected in the move higher in dollar/yen," said Rabobank strategist Jane Foley.

Rabobank revised its one-month forecast for dollar/yen to 148 from 144, expecting further unwinding of bets on the pace of U.S. rate cuts to support the dollar.

Currency moves early in the Asia session were modest on Friday, leaving the euro down 0.7% for the week at $1.0878 and sterling down 0.3% to $1.2708.

The Aussie caught a little support from stabilising iron ore prices and rose 0.1% to $0.6578. The kiwi was steady at $0.6118. [AUD/]

Overnight U.S. labour-market data was strong, with weekly jobless claims dropping to their lowest level in nearly 1-1/2 years, adding to the pressure on market rate-cut wagers.

Two-year Treasury yields, which track short-term interest rate expectations, are up 22 basis points this week to 4.3587%. [US/]

Earlier data showed retail sales rose more than expected in December. Federal Reserve Governor Christopher Waller said on Tuesday the U.S. economy's strength gives policymakers flexibility to move "carefully and slowly" which traders took as pushing back at pricing for a speedy fall in rates.

A similarly hawkish chorus from European central bankers has also dialled back expectations for cuts in Europe, limiting the euro's fall on the dollar and driving gains for crosses such as euro/yen and euro/swissy.

An unexpected rise in British inflation also drove a sharp pullback in bets on Bank of England interest rate cuts, and leant support to sterling.

Bitcoin hit a five-week low at $40,484 overnight as traders have taken profits following the U.S. approval of spot bitcoin exchange-traded funds. Speculators drove the price 150% higher during 2023 in anticipation that the approval paved the way for large-scale investors to buy the cryptocurrency.

By Leika Kihara

TOKYO (Reuters) - The Bank of Japan is likely to maintain its ultra-loose monetary settings next week, putting the focus on any hints Governor Kazuo Ueda drops about when the central bank will boost short-term interest rates out of negative territory.

As many policymakers want to spend a few more months determining whether wage increases will broaden enough to keep inflation sustainably at the BOJ's 2% target, markets now expect a rate hike in March or April at the earliest.

While the BOJ likely has its eyes set on ending negative rates, four people familiar with the central bank's thinking said there were plenty of benefits to holding fire at least until its April 25-26 meeting.

Surveys and comments from business lobbies have shown an increasing chance Japan's spring wage hikes will be above last year's 30-year high 3.58% for major firms - a key prerequisite Ueda has set for exiting ultra-loose monetary policy, which is an outlier among major central banks.

Many BOJ policymakers want to check whether the increases will become more widespread and prod companies to pass on higher labour costs via price hikes, particularly for services, the sources told Reuters.

That is in line with a Reuters poll of analysts, who unanimously forecast the BOJ would keep its short-term interest rate target at minus 0.1% and that for the 10-year government bond yield around 0% at the two-day meeting ending on Tuesday. Ueda will hold a press conference after the decision. Those usually start around 0630 GMT.

With easing cost-push pressure slowing inflation back towards its 2% target, the BOJ can afford to await more data, such as the outcome of the annual wage talks between big firms and unions in mid-March, said the sources, asking not to be identified because of the sensitivity of the matter.

NO 'RUSH TOWARDS THE EXIT'

"The possibility of the BOJ being behind the curve in addressing inflationary risks is small, one source said, echoing the view of two others. "There's no pressure to rush towards the exit," another source said.

In quarterly projections due after the meeting, the BOJ board is expected to cut its core inflation estimate for the fiscal year starting in April but roughly maintain its forecast for trend inflation to stay near 2% in coming years, sources have told Reuters.

With inflation running above the BOJ's 2% target for more than a year, many market players expect the bank to start phasing out its massive stimulus this year.

But investors trimmed bets of a January tightening after a New Year Day's earthquake devastated parts of central Japan and Ueda said in a recent interview that he was in no rush to unwind ultra-loose policy.

Among the reasons the BOJ could wait at least until April is that the board will publish its initial forecasts for fiscal 2026 after that meeting, which could help justify a policy shift by predicting long-run inflation of around 2%.

In addition to the wage talks, the bank would also be able to take into account the economic and market fallout from a possible interest rate cut by the U.S. Federal Reserve.

Former BOJ executive Eiji Maeda expects the BOJ to end negative rates in April if it foresees inflation staying around its 2% target through fiscal 2026.

"We're clearly seeing changes in Japan's price moves", with Japan shaking off a 25-year-old deflationary mindset, Maeda said. "A sustainable, domestically driven rise in inflation is already kicking off."

By Prerana Bhat

BENGALURU (Reuters) - The European Central Bank will reduce interest rates next quarter, according to a Reuters poll, with 45% of respondents saying the reduction in borrowing costs would happen in June.

The poll, which was released on Thursday, also showed the first ECB rate cut was more likely to occur earlier than expected than later.

As inflation moves closer to the ECB's 2% target, the next move is almost certainly a cut, but the timing is still up for debate.

Investors are currently pricing in around 150 basis points of cuts this year, with the first reduction expected in April, despite pushback by some members of the central bank's Governing Council against the aggressive easing calls.

While economists also expect the first rate cut next quarter, they differ from financial markets on the timing.

All 85 respondents in the Jan. 12-17 Reuters poll predicted the ECB would leave its deposit rate at 4.00% on Jan. 25. The central bank will cut rates in the second quarter, said 59 of 85 economists in the poll. Three saw a cut happening in March.

The more than 70% of respondents in the latest poll calling for rate cuts before July compared to around 57% who said the same thing in a December poll. As recently as November, 55% expected no easing until at least the second half of the year.

A significant minority in the latest survey, 38 of 85, said the first ECB cut would come in June. Twenty one said April, and 23 predicted it would occur in the third quarter and beyond that period.

More than 60% of respondents who answered a separate question - 27 of 43 - said the first cut was more likely to come earlier than they expected. The remaining 16 said later.

"If you're hearing the ones (policymakers) that are the most talkative out there, which are the hawks ... almost all of them have been pushing against the possibility of an ECB rate cut at least in the coming months," said Jennifer Lee, senior economist at BMO Capital Markets.

"But stranger things have happened, so I wouldn't be surprised if they do an earlier rate cut. Our view is still that they're going to go in June, so we'll stick to that in the meantime."

The median expectation was for 100 basis points of cuts this year, taking the ECB's deposit rate to 3.00% by the end of 2024. While 36 of 85 economists forecast the rate would be higher than that, 27 predicted a lower level.

When asked what was more likely on the magnitude of ECB rate cuts this year, 25 of 42 said bigger than they expected. The rest said smaller than they expected.

Headline inflation, at 2.9% in December, will fall to the central bank's 2% mandate in the second half of this year, the survey showed.

Upside risks, however, remain as ECB President Christine Lagarde said the central bank is on track to get inflation back to its 2% target, but that the battle has not yet been won.

Sixty-eight percent of economists, 26 of 38, who answered a separate question said the risk of a significant resurgence in euro zone inflation over the coming six months was low, with 12 saying it was high.

"A significant resurgence in inflation is conceivable only in case of new supply shocks. The more important risk is inflation turns out to be more sticky than expected, especially due to wage pressures," said Kristian Toedtmann, senior economist at DekaBank.

The 20-country euro zone was predicted to have entered a winter recession after it shrank 0.1% in the third quarter and was expected to have contracted at the same rate in the fourth quarter.

It would still be a shallow recession, as even the most pessimistic forecast pegs the economy to have contracted just 0.3% in the fourth quarter.

The German economy, which is Europe's largest, shrank in 2023 but still dodged a recession. It was expected to grow 0.3% this year and 1.2% in 2025, the latest poll showed, slower than predicted three months ago.

(For other stories from the Reuters global economic poll:)