ON DECK FOR FRIDAY, FEBRUARY 14
KEY POINTS:
- Bonds, equities and the dollar aren’t feeling much love this Valentine’s Day
- Filter out the market gyrations — the outlook is fraught with risk and high volatility
- Chinese financing up in January, but growth in outstandings continues to decelerate
- If the Eurozone economy is ripping off the US…
- ...then it is doing so rather ineptly with no growth!
- US retail sales face downside risk
- The ridiculous Ukraine peace narrative is already getting walked back
- The US is full of non-tariff barriers
- Canada to update lagging credit conditions, limited macro data
- Peru, Russia hold rates as expected
There isn’t a whole lot of love for bonds, equities or the USD on Valentine’s Day. They must have forgotten to get their significant others something nice, or maybe naughty. Stocks are mixed with a slightly negative bias across NA futures and mixed European cash markets. US Ts are very slightly richer mostly at the front-end while gilts and EGBs are underperforming. The dollar is slightly softer but little changed versus the euro and CAD.
And so we’ve gone from the world is ending in bond land on Wednesday after CPI with the Fed never cutting again and soaring inflation taking bond yields higher, to producer prices reversing that sentiment and then Saint Trump descending from the heavens to easily deliver world peace and liberalize world trade through the madness of his ways that drove lower yields and higher equities on Thursday, to a bit of a pause on both narratives so far today. Chalk it all up to overly interpreted market noise. The path ahead is fraught with risk and high volatility.
Yesterday’s ridiculous narratives around ending war in Ukraine are being walked back this morning. Zelensky is saying he sees no ready made plan to back Trump’s hubris. Hegseth’s speech is being trashed in US policy circles. Vance is saying maybe US troops could be required in Ukraine and that the US stands ready to apply more sanctions against Putin if he doesn’t dance to their liking.
There are a few forms of calendar-based risks to consider, plus whatever craziness happens off-calendar to end the week. Peru’s central bank held at 4.75% last evening as most expected, and so did Russia’s central bank at an eye-watering 21% key rate this morning. China updated credit figures, Eurozone GDP remains soft, US retail sales are on tap, and Canada updates some data and lagging measures of access to credit.
I’ll save my thoughts on Trump’s latest protectionist moves yesterday for my Global Week Ahead article later today. Suffice it to say that the US is full of hypocritical non-tariff and protectionist barriers itself including non-tariff measures applied against US$1¾ trillion of its imports, claiming that VAT taxes are such a barrier is just plain nuts, and what the American administration is setting out to do is to make the world more American which in many respects must be resisted by sovereign nations. It is no standard setter for fiscal prudence, free and fair markets or sound social policy.
CHINESE FINANCING IS SHOWING LITTLE RESPONSE TO MONETARY EASING
Chinese aggregate financing was pretty solid in January with modest beats to limited consensus estimates. This January was the strongest January on record for both new yuan loan origination and growth in aggregate financing (charts 1, 2), but so is virtually every January in part due to economic growth and varying price pressures over time but also with the timing of the annual Lunar New Year. Having said that, growth in yuan loans outstanding is at its lowest since 2001 and growth in outstanding balances of aggregate financing is at its lowest since at least 2018 when the revised figures began (chart 3, 4). The weak growth in outstandings suggests limited effect of rate cuts, RRR cuts and other forms of easing and hence indicates relatively inelastic demand for money.
US RETAIL SALES FACE DOWNSIDE RISK
US retail sales will be the main possible risk amid expectations that lower vehicle sales will be among the downward forces, but core sales may be more resilient (8:30amET). The US also updates industrial production for January which is expected to post mild growth outside of manufacturing (9:15amET).
THE BOC’S SLOS WILL PROVIDE LAGGING CREDIT SIGNALS
The BoC’s Senior Loan Officer Opinion Survey is due out for its quarterly update this morning (10:30amET). It will sample conditions toward the end of calendar Q4 and hence is going to be partly stale on arrival. Still, watch for any potential effects on credit price and non-price measures of access on household and business loans but the next survey ages from now in May for Q1 may be more reflective of the effects of trade policy uncertainty and we may stale again by that point.
There is also light Canadian data but it’s mostly in the form of revisions to advance flash estimates. Wholesale and manufacturing figures for December arrive at 8:30amET.
OH SURE, THE EUROZONE’S REALLY RIPPING OFF THE US…
If the European economy is gaining a leg up on the Americans with unfair trade practices, then they’re ineptly executing on such an advantage! Eurozone GDP got revised up a tenth to 0.1% q/q SA nonannualized for Q4. Employment grew 0.1% q/q in Q4. Eurozone policies cost itself as opposed to Trump’s victim narrative from the perch of the best performing major economy on the planet.
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