The Bank of Japan will buy unlimited government bonds, Goldman Sachs expects the Fed to raise interest rates seven times this year, and the Saudi sovereign fund will receive 4% stake in Saudi Aramco丨 Overseas Finance wants to participate

21st Century Business Herald reporter Hu Tianjiao comprehensive report

1. Global financial markets

The Bank of Japan defends its bond yield target amid rising market pressures

The Bank of Japan said it would buy unlimited government bonds next week to defend its bond yield target, showing its determination to resist tightening global monetary policy. The move comes as investors test the Bank of Japan's commitment to its policies. "Yield curve control" has been a core feature of the BoJ's monetary stance since 2016, under which the BOJ is now committed to keeping 10-year bond yields within a quarter of a percentage point of zero. An earlier version of the policy set a narrower tolerance. Consumer prices in Japan rose by 0.5% over the year to December 2021. Hiroshi Ugai, JPMorgan's chief economist for Japan, said the statement showed the BoJ's "firm commitment" not to allow the 10-year yield to break above the 0.25 percent level and to stick to the current easing.

The Saudi government transferred a 4 percent stake in Saudi Aramco to a sovereign wealth fund

Saudi Arabia transferred a 4 percent stake in saudi Aramco, a state-owned oil conglomerate, to its sovereign wealth fund, a move worth about $80 billion. The Saudi Public Investment Fund (PIF) is supporting its assets and is preparing to raise public debt. A week before the decision was made, PIF received its first credit ratings from Fitch and Moody's. PIF is the driving force behind Saudi Arabia's ambitious plan to restructure its economy by 2030. It's a precursor to the fund's possible launch of "green bonds" and a $15 billion bank lending arrangement as it seeks to raise more debt. In a statement from the official news agency, Saudi Crown Prince Mohammed bin Salman, the country's day-to-day ruler and chairman of the PIF, said the move was aimed at supporting the wealth fund's plans to increase its assets to 4 trillion riyals ($1.07 trillion) by 2025.

Goldman Sachs lowered its S&P 500 year-end target to 4900

Goldman Sachs Group Inc. Strategists lowered their expectations for U.S. stock market returns this year as the prospect of more aggressive monetary tightening pressured valuations. The strategists lowered the year-end target for the S&P 500 benchmark index to 4900 points from the previous 5100 points. The index closed at 4418.64 on Friday. While the outlook is less optimistic, it still means the economy will rise 11 percent from current levels to a record high, though strategists warn of greater downside risks. "The macro backdrop this year is more challenging than 2021," the Goldman Sachs team, led by David Kostin, wrote, "and the path of inflation and fed policy is fraught with uncertainty." "U.S. stocks are at a disadvantage at the start of the year as the Fed prepares to close the floodgates of abundant liquidity. It was abundant liquidity that drove the strong rebound in the stock market after the pandemic.

Goldman Sachs expects the Fed to raise interest rates seven times by 2022

Goldman Sachs expects the Fed to raise interest rates seven times this year to curb higher-than-expected U.S. inflation, rather than the five previously expected. Economists led by Jan Hatzius wrote in a note to clients that the bank expects to raise rates by 25 basis points at every meeting remaining this year. Previously, the US consumer price index recorded its biggest increase since 1982. This view is also shared by investors, who expect rate hikes to be similar in magnitude and speed. Swap trading related to the date of the Fed meeting shows that investors expect the main interest rate after the Fed's December meeting to rise to 1.85% from the current level close to zero.

Turkey cut value-added tax on major food products to curb inflation

Turkish President Recep Tayyip Erdogan said Turkey would cut the value-added tax on staple foods from 8 percent to 1 percent to curb inflation. Speaking at a finance ministry news conference on the new economic support package, Erdogan called on businesses to lower prices starting Monday to reflect the change. Finance Minister Nureddin Nebati said at the event that the government will also set up a task force to check prices and create a mobile app to help citizens find the cheapest goods. At Erdogan's urging, Turkey's central bank cut interest rates by 500 basis points in four consecutive meetings since September, causing the lira to plummet and inflation to soar. In January, annual inflation accelerated to 48.7 percent, the highest level in Erdogan's 20 years in power.

2. International Regulatory Developments

Fitch downgraded Turkey's debt rating due to soaring inflation

Fitch downgraded Turkey's sovereign debt rating, downgrading Turkey's long-term debt rating from BB- to B+, bringing it on par with ratings in Banin, Egypt, Turkmenistan, Rwanda and Kenya. Fitch has issued a negative outlook for Turkey's debt outlook, meaning it could face further downgrades. Fitch also said Turkey's financial system has become more vulnerable due to frequent and intense financial stress events. Fitch said the financial stress event was driven by policymakers. "At the heart of Erdogan's plan to stabilize the country's crisis-prone economy — a series of exchange-rate-linked savings schemes — will not sustainably mitigate macroeconomic and financial stability risks."

3. Fintech and virtual currency, etc

After encountering a bug warning, Coinbase resumed trading capabilities

Coinbase Global Inc., the largest cryptocurrency exchange in the United States, resumed operations of a recently launched advanced trading feature that was earlier suspended after an unverified social media user warned of a possible vulnerability. A Coinbase spokesperson said the company is in contact with the user to learn more about the issue. Coinbase CEO Brian Armstrong also responded to the user, saying the company would conduct an investigation. Last November, Coinbase introduced advanced trading features to a small number of customers on Coinbase.com. According to the company's website, the feature is designed for more experienced traders to interact directly with the order book.

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