Stock markets softened further overnight, with renewed concerns about consumer spending and geopolitical uncertainty. The Dow closed down 1%, the S&P fell 0.4%, and the Nasdaq slipped 0.5%, with Walmart’s (-6.5%) disappointing earnings guidance amplifying fears over the resilience of consumer demand. Financials also came under pressure, with JPM (-4.4%) and GS (-3.8%).
A bit of flight to quality helped U.S. Treasury yields, 10yr yield dropping 3bps to 4.50%. The curve remained under pressure, with 2s10s closing at session lows near 23bps. A solid intraday concession was observed in TIPS ahead of the $9 billion 30-year auction, which cleared slightly through at 2.403% with strong non-dealer participation.
USD weakened further, with the Bloomberg Dollar Index (BBDXY) trading at two-month lows near 1284. USD/JPY broke below 150.00 for the first time since December, as speculation intensified over an earlier-than-expected Bank of Japan rate hike.
On the macroeconomic front, U.S. jobless claims came in close to estimates at 219k initial claims and 1869k continuing claims, reflecting a stable labour market. The Philly Fed business outlook outperformed expectations at 18.1 (vs. 14.3 est.), but the Conference Board’s leading index for January fell 0.3%, signalling potential economic softening.
FedSpeak was mixed. Fed Governor Musalem (hawk, voter) warned that inflation risks remain skewed to the upside, while Goolsbee (dove, voter) suggested that January’s PCE data may not be as concerning as initially feared. Bostic (neutral, non-voter) reiterated expectations for two rate cuts this year but acknowledged policy uncertainty.
Globally, Australia’s labour market data exceeded expectations with a 44k employment gain, though the unemployment rate edged up to 4.1% due to record-high labour force participation. The RBA's Hauser struck a cautiously optimistic tone, stating that there was "hard to see bad news" in the report.
UK’s Q4 GDP growth of 0.9% YoY masked a 0.1% decline in GDP per capita, marking the widest gap between GDP and per capita growth since 1956.
Japan’s Q4 GDP came in stronger than expected, fuelling speculation that the BOJ could begin a gradual rate-hike cycle by mid-2025.
Looking ahead, today’s key data releases we get Feb existing home sales, and the final Michigan consumer sentiment reading out of the US, Feb’s preliminary PMIs from around the globe and Japan’s January CPI
Central bank speakers to watch include the Fed’s Jefferson and Kugler and, across the pond, ECB’s Lane.
Whats priced in? Next cut is fully priced in by September, with 37bps priced through to the end of the year.
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