Following the delayed December US print yesterday, showing that US consumers tightened their purse strings at the tail end of last year, US Treasury yields bull flattened and the took a hit.
All four key retail sales measures disappointed: both headline and core were flat, and the retail control group, which strips out the most volatile components to provide a cleaner view of underlying consumer demand, fell by 0.1%.
Markets reacted in a predictable fashion: anaemic consumer activity portends softer demand and, ultimately, easing – which remains stubbornly north of the Fed’s 2.0% target. Technically, although we have jobs and inflation data up today and Friday, respectively, this provides the Fed some breathing space to cut rates a little more aggressively.
‘Takaichi’ Trade in Question?
Together with a moderate dovish repricing in expectations (-60 bps implied by year-end), USD downside was most pronounced versus the JPY; the was down 1.0% by the close and taking a battering this morning.
Despite the anticipation, the ‘Takaichi’ trade appears to be faltering, which, given the Japanese PM’s pro-business agenda, should theoretically weigh on the JPY. Although it is still early days, and given that USD/JPY is trading in a region where the Ministry of Finance could intervene, it seems we have a classic case of ‘buy the rumour, sell the fact’ unfolding at the moment.
Will the Dow Jones Hit 100,000 in Three Years?
With the clocking a fresh record high of 50,512 yesterday, it may be worth casting your mind back a few days to when US President Donald Trump predicted that the Dow would reach 100,000 in three years, as shown below.
Trump framed this on the back of the country’s ‘GREAT TARIFFS’. While it could happen, it is very unlikely that we will see the Dow double – that would need an annual return of just under 30%! While I am certainly not privy to the inner workings of the Trump Administration, one may speculate whether his forecast serves primarily to bolster support for his tariff agenda by anchoring expectations to market performance.
US Jobs Report on Deck Today
All eyes today will be on the slightly delayed US January , with the median estimate suggesting the economy added 70,000 payrolls – up from 50,000 in December, as shown in the LSEG economic calendar below. The estimate range, nevertheless, is wide: between 135,000 and -10,000.
US data has painted a sobering picture in the run-up to this release. In addition to persistent downward revisions to prior payrolls data, the January private payrolls missed at just 22,000, December fell to 6.5 million, and announcements reached their highest level since 2009. The also suggest tepid hiring, particularly in Services.
My thresholds heading into the release today are simple. I am looking at 100,000 or more for a solid beat. This, coupled with lower unemployment and rising wage growth, could trigger a sharp hawkish repricing in expectations and a move higher in US yields and the USD, given stretched positioning. Additionally, anything at or below 30,000 for a notable miss would likely increase expectations of rate cuts and weigh on yields and the USD. I released a more in-depth preview yesterday evening, which you can read here.
