|10-Year: -2/32....2.547%.... GNMAs: .... USD/JPY: 111.03.... EUR/USD: 1.2183|
-- December CPI (actual 0.1%; Briefing.com consensus 0.2%; prior 0.4%), Core CPI (actual 0.3%; Briefing.com consensus 0.2%; prior 0.1%), December Retail Sales (actual 0.4%; Briefing.com consensus 0.4%; prior 0.9%), and Retail Sales ex-auto (actual 0.4%; Briefing.com consensus 0.4%; prior 1.3%)
-- November Business Inventories (actual 0.4%; Briefing.com consensus 0.3%; prior -0.1%)
2-yr Yield Hits 2.00%
- U.S. Treasuries ended the week on a mostly lower note with shorter durations showing relative weakness. Treasuries slumped to session lows shortly after the cash open, responding to a hotter than expected core CPI for December (actual 0.3%; Briefing.com consensus 0.2%) and in-line December Retail Sales (actual 0.4%). However, the morning dive was followed by a swift rebound in the long bond, which reclaimed its loss over the next two hours and climbed to a fresh session high in afternoon action. The 10-yr note recovered a large portion of its loss after morning selling drove its yield to 2.594%, just shy of Wednesday's high at 2.595%. Up front, the 2-yr note underperformed throughout the day with its yield climbing above the 2.00% mark for the first time since late 2008. Yield curve steepening from the early portion of the week was mostly undone as the 2s10s spread finished the week at 55 bps, up three basis points since last Friday while the 2s30s spread ended the week unchanged at 85 bps.
- Yield Check:
- 2-yr: +4 bps to 2.00%
- 5-yr: +3 bps to 2.35%
- 10-yr: +2 bps to 2.55%
- 30-yr: -1 bp to 2.85%
- Rate hike expectations strengthened with the fed funds futures market implying a 73.7% probability of a hike in March, up from 68.0% on Thursday.
- Total CPI was up just 0.1% in December (Briefing.com consensus +0.2%), having been held back by a 1.2% decline in the energy index. Core CPI, which excludes food and energy, was up a hotter-than-expected 0.3% (Briefing.com consensus +0.2%), driven by a 0.4% increase in the shelter index.
- The key takeaway from the report is that it won't change the Fed's prevailing expectation that three rate hikes are in order this year.
- Retail sales rose 0.4% in December, as expected, while sales excluding autos also increased 0.4%, as expected.
- The key takeaway from the report is that it should underpin the belief that favorable economic drivers continue to act as an expedient for increased consumer spending activity that will benefit Q4 GDP growth.
- Total business inventories increased 0.4% in November (Briefing.com consensus +0.3%) after an upwardly revised reading of unchanged (from -0.1%) for October. Total business sales increased 1.2% after an upwardly revised 0.8% increase (from 0.6%) for October.
- The key takeaway from the report is that sales growth is outpacing inventory growth, which is a step toward regaining some pricing power.
- WTI crude: +0.6% to $64.21/bbl
- Gold: +0.9% to $1334.90/ozt
- Copper: -0.3% to $3.22/lb
- EUR/USD: +1.3% to 1.2182
- USD/JPY: -0.2% to 111.05
- The Week Ahead:
- Monday: Bond and equity markets closed for Martin Luther King Jr Day
- Tuesday: January Empire Manufacturing (Briefing.com consensus 19.0; prior 18.0) at 8:30 ET
- Wednesday: Weekly MBA Mortgage Index (prior 8.3%) at 7:00 ET; December Industrial Production (Briefing.com consensus 0.4%; prior 0.2%) and December Capacity Utilization (Briefing.com consensus 77.3%; prior 77.1%) at 9:15 ET; January NAHB Housing Market Index (Briefing.com consensus 73; prior 74) at 10:00 ET; weekly Crude Inventories (prior -4.95 mln) at 10:30 ET; January Beige Book at 14:00 ET; and January Net Long-Term TIC Flows (prior -$23.20 bln) at 16:00 ET
- Thursday: December Housing Starts (Briefing.com consensus 1280K; prior 1297K), December Building Permits (Briefing.com consensus 1290K; prior 1298K), weekly Initial Claims (Briefing.com consensus 251K; prior 261K), Continuing Claims (prior 1.867 mln), and January Philadelphia Fed (Briefing.com consensus 24.5; prior 26.2) at 8:30 ET; and weekly Natural Gas Inventories (prior -359 bcf) at 10:30 ET
- Friday: Preliminary January Michigan Sentiment Index (Briefing.com consensus 97.0; prior 95.9) at 10:00 ET