Central banks events in focus

On Tuesday, Japan upgraded its outlook on production in the January report for the first time since November 2020 but marking the possibility that COVID-19's Omicron variant outbreak could stall the economy's recovery.

Share markets in Asia and early Europe plunged on Tuesday. The turn in sentiment appears to have come after two-year US Treasury yields, a gauge of rate expectations, rose above 1% for the first time since February 2020.

Central banks are expected to tighten their policies in order to combat persistent inflation in 2022. This will result in a general struggling outlook for equities this year and investors shifting from growth to value stocks. Company earnings - which need to be strong for investors to prevent further losses - are in focus now.

Central banks events

As part of their two-day monetary policy meeting, the Bank of Japan is expected to keep policy on hold and increase their inflation forecast on Tuesday. Despite a recent spike in global commodity costs, inflation remains well below the bank's 2% target.

On Thursday, the ECB's minutes from its December meeting will be released amid a debate about how most effectively to handle rising price pressures within the EU.

ECB minutes and speeches from President Christine Lagarde and other ECB members will be of interest to investors since no major economic data is due this week for the eurozone.

ECB President Christine Lagarde said on Friday that the bank is prepared to take any steps necessary to get inflation below its 2% target. A record high of 5% inflation was recorded by the bloc last month.

Furthermore, in light of the upcoming Fed meeting on January 24-25, the Fed is currently spending a quiet period.

US data in a quiet week

On the American front, this holiday-shortened week will be light on economic news, although there will be updates on the housing market and regional manufacturing surveys.

Tuesday will bring the Empire State Manufacturing Index, while Wednesday will bring the building permits and housing starts data. On Thursday, we'll get the Philly Fed manufacturing index and initial jobless claims as well as existing home sales data.

The manufacturing surveys are expected to show a significant impact of the wave of Omicron variants on factory activity, while the housing data are expected to remain strong. It is unlikely that any of the upcoming data will significantly alter market expectations for a rate hike in March.

Oil posts a fresh multi-year record high

Oil prices rose more than $1 on Tuesday to a more than seven-year high on worries about possible supply disruptions following rising tension in the Middle East as new geopolitical tension added to ongoing signs of tightness across the market. Investors await OPEC monthly report due today later.

The Chinese GDP report was released

Chinese economic growth slowed in 2021, possibly due to a property market downturn. In response, the People's Bank of China (PBOC) cut interest rates on policy loans.

In the fourth quarter, GDP increased by 4% year-on-year, according to data released earlier today which was better than expected while the growth of 4.9% was recorded in the third quarter.

Policymakers may be under increased pressure to ease up. However, analysts believe they are more likely to inject more cash into the economy rather than cut interest rates too aggressively under the circumstances.