In the US, retail sales and producer price data for December will be released today, which may or may not contribute to hopes of a Fed reversal. The Bank of Japan has refused to do a U-turn despite all bets that it will be forced to abandon its cap on bond yields. The Bank of England is also under pressure to tighten monetary policy after strong inflation data for December. Microsoft is expected to announce job cuts, while PNC Financial and JB Hunt are expected to report earnings. Oil prices hit their highest in more than a month on predictions that the global market will face a large supply shortage by the end of the year. Here’s what you need to know about the financial market on Wednesday, January 18.

1. RETAIL SALES AND THE PRODUCER PRICE INDEX FUEL THE FEDS REVERSAL NARRATIVE

The U.S. will release retail sales data for December at 08:30 Eastern Time (13:30 GMT), the latest test of U.S. consumers’ ability to keep spending despite slowing economic growth.

Analysts expect a 0.8% drop in the value of sales, which will result in a slightly smaller decline in sales given the 0.1% drop in consumer prices last month.

Inflation data for December will also be reported and is expected to fall 0.1%. If the data is confirmed, the Producer Price Index (PPI) will hit its lowest level in 18 months, providing further evidence that the expansion in profit margins that drove inflation during the pandemic is now quickly coming to naught.

2. THERE IS NO WORD FOR “REVERSAL” IN JAPANESE

The Bank of Japan left its monetary policy unchanged, defying expectations that it would loosen its cap on long-term bond yields.

The financial market had bet heavily that the BOJ would abandon its yield curve control policy, a decision that triggered a rapid unwinding of speculative positions in the yen, whose minimal interest rate makes it the preferred funding currency for rate-based trades.

The dollar rose as much as 2% against the yen after the BOJ’s decision, but later gave back more than half of its gains and was trading 0.9% lower by 06:15 ET, suggesting the market still wants to test the BOJ’s resolve to defend the 0.5% cap on 10-year Japanese bond yields. The BOJ spent more than $260 billion in December to prop up yields and now owns more than half of the country’s entire bond market.

3. U.S. STOCK MARKET TO OPEN SLIGHTLY HIGHER AHEAD OF RETAIL SALES DATA RELEASE; MICROSOFT TO ANNOUNCE JOB CUTS

U.S. stock indexes will open slightly higher, but futures are showing little confidence ahead of the retail sales report.

By 06:15 ET, the Dow Jones futures were up 22 points, or less than 0.1%, while the S&P 500 futures were up 0.1% and the Nasdaq 100 futures were up 0.2%. The major money indexes had a mixed day Tuesday, with a weak Goldman Sachs earnings report sending the Dow down nearly 400 points.

Stocks likely to be in focus later in the day are Microsoft, which is reportedly likely to announce job cuts during the day. The Redmond-based giant reported its slowest revenue growth in 5 years in the third quarter. Results for the fourth quarter are due next week.

Earnings reports from Charles Schwab, Prologis, PNC Financial and JB Hunt, among others, are due out later.

4. BANK OF ENGLAND UNDER PRESSURE TO PROCEED WITH RATE HIKE AFTER STRONG CPI DATA

The pound rose to a seven-month high after UK inflation remained above 10% in December, putting the Bank of England under pressure to raise interest rates further.

Core inflation remained at 10.5%, with food and service prices still rising strongly. The figures confirmed reports from the retail sector that spending remains strong despite a continued fall in the cost of living.

In contrast, the euro fell after Bloomberg reported that a number of European Central Bank policymakers intend to slow the pace of rate hikes after their next meeting in February. Bank of France Governor Francois Villeroy de Gallo warned that guidance for a 50 basis point rate hike in February nevertheless remains in place

5. OIL HITS SIX-WEEK HIGH AFTER MAYA DEFICIT FORECAST; API INVENTORY DATA EXPECTED

Crude oil prices rose to the highest level in more than a month after the International Energy Agency predicted a sharp shift in the global supply-demand balance over the course of the year due to a rebound in demand in China.

The IEA forecast a surplus of about 1 million barrels a day in the first quarter of the year, which will turn into a deficit of 1.6 million barrels a day in the third quarter and rise to 2.4 million barrels a day by the end of the year, despite record high global oil supply.

By 06:30 ET, U.S. WTI crude futures had gained 1.9% to $82.00 a barrel, while Brent crude futures rose 1.6% to $87.33 a barrel. Weekly data from the American Petroleum Institute (API) on U.S. crude oil inventories is due at 4:30 p.m. ET.