James Brodie
Head of Learning & Development, Flux
Commodities Rally, Dollar Weakens, US Data, Bitcoin
Commodities rise, dollar falls on weak data; Fed steady tone; payrolls key; delinquencies up; yen surges; AI, freight shift markets
Commodities rally and the dollar fell on weak Chinese inflation data (CPI +0.2% YoY, PPI -1.4% YoY), weaker US data (retail sales data, Employment cost index and the Atlanta Fed).
Meanwhile two Fed presidents said current Fed Funds levels are appropriate, Donald Trump called for an immediate cut of 2% in rates, all while the OIS prices 62bp cuts over the next 12 months, with 2026 GDP expectations of 2.5% and unemployment rate of 4.4%.
Today’s payrolls will direct market price action, with the 2-year yield still the most important chart in my view, wait for the break, the move will be aggressive. Note BNP now estimates that 0-20k job growth in the US is enough to keep unemployment steady. (Chart 1, US -year bond yield, Bloomberg, wait for the break!)
US data:
Retail sales 0.0% MoM (est +0.4%)
Employment Cost Index (Q4): +3.4% YoY (slowest since early 2021)
The Atlanta Fed's GDPNow model is now tracking Q4 GDP at 3.7%.
More hawkish Fed speakers:
FED’s Hammack: interest rates could remain on hold for extended period while economic data is assessed; flexibility will be maintained to raise rates if needed.
FED’s Logan: rates near neutral, cuts may not be needed
USDJPY falls 3% in 3-days on renewed Yen strength. While BCA Research warns Yen Carry Trade Is a ‘Ticking Time Bomb’. A reminder of the extent of Yen weakness versus the 2-year interest rate differentials (Chart 2, USDJPY vs rate differentials, Bloomberg)
More AI disruption. Shares of several wealth management firms fell sharply after Altruist launched a new tax-planning offering within Hazel, its AI platform. Charles Schwab and Raymond James leading the losses, dropping more than 8% each. Others include: Stifel -5.5%, LPL Financial -7.2%, Morgan Stanley -2.6%, Ameriprise Financial -6.1%.
The K-shaped economy, with lower and middle incomes clearly struggling. US Consumer Delinquencies Jump Delinquency rates on loans ranging from mortgages to credit cards rose to 4.8% of all outstanding US household debt in the fourth quarter, the highest level since 2017, driven by higher defaults among low-income and young borrowers.
“BYD overtakes Ford in global vehicle sales.” Just 5 years ago, Ford sold 5 times as many vehicles as BYD.
Freight rates continue to drive higher on renewed manufacturing demand, and away from port demand. "We’re moving from a 'Consumer-Led' freight market to an 'Industrial-Led' one. The SONAR data on flatbed tender rejections vs. dry van tells the whole story. While the ports are quiet because of the post-tariff import hangover, the 'Industrial Heartland' is screaming for capacity to move infrastructure for the AI/Energy build. This is the first time in 15 years that the 'Inside the Box' economy is losing to the 'Outside the Box' economy." (@freightalley).
Bank of America added U.S. materials stocks to its list of assets showing “bubble-like” behaviour, alongside gold, silver, and South Korea’s Kospi. U.S. equities and Mega cap tech remain relatively stable.
Bitcoin drops back below $67,000 as selling pressure in crypto returns.
Gold inventories at the Shanghai Futures Exchange vaults are skyrocketing: Deliverable gold in the Shanghai Futures Exchange, measured by warehouse warrants, is up to a record 104 tonnes. (Chart 2, The Kobeissi Letter)
While hedge funds are aggressively shorting, retail continues aggressively buying. FINRA Margin debt surpassed $1.3 trillion last month. (Chart 4, MacroEdge Research)
Six US states now have bills to pause data centre construction. New York just introduced a three-year moratorium.
Data today – US payrolls (median estimate +70k, high +135k & low -10k, with 4.4% unemployment)
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