US markets will be closed on Monday for Presidents’ Day. Fed officials Harker and Bowman are scheduled to speak during the day. UK labour market data and the US Empire manufacturing prints are due on Tuesday, and central bank chatter includes the Fed’s Daly, and BoE’s Bailey and ECB’s Holzmann and Cipollone. China property prices, UK CPI and US housing starts follow on Wednesday; we also have the FOMC minutes from the January meeting. Walmart’s earnings, a US consumer bellwether, are out on Thursday, and we’ll hear from the Fed’s Goolsbee, Musalem and the ECB’s Makhlouf and Nagel. A host of PMI prints, and US existing home sales and the Uni. of Michigan consumer sentiment prints will garner market attention on Friday.
Asset classes witnessed a tumultuous week amid US tariff threats and policy uncertainty, though their delayed implementation hints at possible negotiation tactics rather than immediate action. While US inflation data surprised to the upside, many analysts viewed the CPI report as particularly volatile, with expectations that the Fed’s preferred PCE deflator might decrease. At the end of the week US Treasury yields rallied below 4.50% as weak January retail sales data reignited expectations for Fed rate cuts, with the 10-year bond marking its longest winning streak since 2021. The S&P Index was little changed following the retail sales print, however, still enjoyed a 1.47% gain over the week. Meanwhile the dollar, DXY Index, fell 1.23%. Brent crude closed marginally higher to $74.74pb, amid mixed reaction around the Russia-Ukraine peace negotiations.
Fed Chair Powell maintained a cautious stance on rate cuts during recent testimonies, reinforced by January’s inflation data showing headline CPI at 3.0% and core at 3.3% – the largest monthly increase since August 2023. While housing costs and eggs drove much of the increase, positive trends emerged as food prices stabilised and core measures decreased. US PPI also surprised to the upside; the headline held steady at 3.5%yoy while core marginally eased to 3.6%yoy. The surprisingly large 0.9% drop in retail sales – the biggest decline in nearly two years – suggests consumers are pulling back after strong spending at the end of 2024.
Elsewhere, China’s economic outlook in early 2025 reflects a mix of policy-driven liquidity support and persistent structural challenges. While January’s credit expansion exceeded expectations, much of the growth came from short-term loans and bill financing, raising concerns about the sustainability of demand recovery. The PBoC maintains an easing bias, emphasising offshore renminbi market development and reasonable price levels to counter weak CPI and PPI trends. Bond yields have edged higher amid cautious optimism, but the sluggish property and construction sectors highlight lingering economic headwinds. With the National People’s Congress approaching, markets will closely monitor whether recent credit expansion translates into real economic momentum or if further policy measures are needed to sustain growth.
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