The Treasury market shrugged off greater than expected manufacturing data and import/export prices and focused instead on weaker than expected retail sales. Sales slumped in January by the most in nearly two years, perhaps indicating an abrupt pullback by consumers after a spending spree in the closing months of 2024.
The immediate interpretation of the data is that the Fed will be able to ease sometime in 2025, perhaps as early as September and as much as 37 bps for the year. This is a significant change from the day before as some were suggesting a possible rate hike later in the year.
The bond market has traded in a narrow but volatile range, as expectations change almost daily based upon the data de jour.
Speaking of uncertainty, almost every day the Administration announces something new. To date much of the statements are just that..statements. Bloomberg indicated the cuts from DOGE are really just reductions on the periphery, reductions that are perhaps only great click bait for one’s perceived view or interpretation.
Perhaps FRB Powell placed today in proper context when he was asked about the impact of tariffs during last week’s congressional testimony. The Fed Chief said “it would be unwise to speculate on tariff policy at this time” as nothing yet has been levied and items that may be exempt.
It is generally agreed that tariffs are inflationary, however what is not known is how the currency and debt markets will ultimately behave, a behavior that may negate any impact of the tariffs.
As noted several times, the President’s proposals—specifically tariffs—have not over impacted the markets. They are great fodder, able to craft a preconceived narrative but it has been the data that has been the primary market catalysts.
What will happen this week?
The economic calendar is comprised of several housing statistics, the Minutes from the recent FOMC meeting, a manufacturing and sentiment survey.
Last night the foreign markets were up. London was up 0.10%, Paris up 0.07%, and Frankfurt up 0.01%. China was Japan up 0.25% and Hang Seng up 1.59%. Futures are up about 0.25% on talks to end the Ukrainian war. The 10-year is off 9/32 to yield 4.52%.
