Inflation is coming, but instead of being scared of the "not too hot, not too cold" narrative of the 2017 ending, market sentiment remains positive.
This can be seen in how global markets ended last week with a rebound from the previous week's correction.
"The fear of missing out dominated the behaviour of investors who had waited out the recent sell-off to 'buy the dip'," said Citi. "Price action... is consistent with our base-case view that the ongoing business-cycle expansion encourages portfolio rebalancing out of fixed income and into equities, and out of the US dollar and into riskier currencies."
In Singapore, all eyes are on the Budget to be delivered today by Finance Minister Heng Swee Keat. Taxes are expected to go up.
"We believe the Government will hike GST (goods and services tax) by 1 percentage point to 8 per cent in FY2018 and a further 1 percentage point to 9 per cent in FY2019, so as to address the gap between revenue and expenditure growth," said United Overseas Bank (UOB) in its weekly outlook. "Another tax that may be introduced in this year's Budget could be an e-commerce tax."
The bank added that the next data point to watch in Singapore is the January consumer price index data, out on Friday.
In China, markets resume trading only on Thursday. UOB said the key economic data point is January property prices, out on Saturday.
BRIDGING THE GAP
We believe the Government will hike GST by 1 percentage point to 8 per cent in FY2018 and a further 1 percentage point to 9 per cent in FY2019, so as to address the gap between revenue and expenditure growth.
UNITED OVERSEAS BANK
For the United States, energy-related companies and big retailers will announce earnings this week. Fed minutes, purchasing manager index surveys and home sales data will also be out.
Meanwhile, in Japan, consumer price index data will be out later in the week. Moody's Analytics said: "The key unknown remains whether sustained and stronger income growth will emerge."
While equity investors remain bullish, bond investors remain cautious. That is no surprise as inflation is the biggest killer of fixed income.
As signs of stronger inflation this year continue to seep into economic data, the US 10-year yield hit 2.9 per cent and last traded just below it.
A rate-hike cycle typically leads to flows into US assets, as money flows to take advantage of higher yields. Yet the US dollar has stayed weak. An explanation has been how Chinese buying of Treasuries has abated. Another explanation is higher expected rates in Japan and the euro zone.
In an electronics rebound, Asian exporters like Samsung also have to convert substantial amounts of cash back to their domestic currency. And perhaps people are worried about US assets, given a higher deficit.
Yet if rates keep rising and the US dollar rallies, some economies and markets could be under stress, DBS said in a note last Thursday. It estimated the external financing needs of seven key Asian economies, compared with central bank reserves. India, Indonesia and Malaysia remain the most vulnerable, it said.