December retail sales data much stronger than expected

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Published Date 1/17/2024

Prior to 8:30 am ET the 10 year note was trading unchanged from yesterday; at 8:30 am December retail sales were much stronger than forecasts sending the 10 year up 5 bps to 4.12%. December retail sales expected +0.4% increased 0.6%, ex-vehicles expected +0.2% increased 0.4%. The sales the strongest in three months. Also, at 8:30 am December import and export prices, imports thought to be -0.6% were unchanged from November, year/year forecasts -2.0% were -1.6%; export prices estimates -0.6% were down 0.9%, year/year exports -3.2% from -5.2% in November. The two reports highlight the view that while inflation is declining, it isn’t a straight line lower.

Rates increased yesterday on remarks coming from Davos that the anticipated rate cuts may be too optimistic. Various central bankers tossed a lot of cold water on the growing belief the Fed and other central banks are ready to begin lowering rates. The IMF saying rapid interest-rate cuts are a bit premature, we should expect rates to come down some time this year, but based on the data we see right now, we expect this to be more likely in the second half of this year. Today, Christine Lagarde, ECB, added her take, rate cuts are premature, she suggested rate cuts are not likely until this summer at the earliest. ECB Governing Council member Robert Holzmann was even more pessimistic over anticipated cuts, saying he doesn’t expect lowering rates this year, adding concern over the Middle East that may escalate. Bundesbank President Joachim Nagel agreed that it’s premature to discuss monetary easing, suggesting no movement before the summer.

On inflation falling to 2.0%, the ECB saying it isn’t likely until the second half of 2025.

The tone from Davos is rate cuts are too optimistic with some talking six cuts, given comments from Fed governor Waller yesterday traders are removing those optimistic outlooks. The 10 year increased 12 bps yesterday and this morning increased another 5 bps. Strong retail sales add to the view the consumer is still strong, adds to the changing view the Fed and other central banks are not in any hurry to start lowering rates as markets had been widely anticipating.

December industrial production better than thought, +0.1% on forecasts of -0.1%, capacity utilization 78.6% unchanged from November.

At 9:30 am the DJIA opened -128 on slower rate cuts, NASDAQ opened -135, S&P -34. 10 year at 9:30 am 4.10% +4 bps. FNMA 6.0 30 year coupon at 9:30 am -16 bps from yesterday’s close and -36 bps from 9:30 am yesterday.

At 10 am January NAHB housing market index was expected at 38 from 37 in December, as reported at 44.

There are three more Fed officials speaking today, not looking for any change from what is now thought to be a slower rate decrease than thought last Friday.

Source: TBWS

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