this week
Geopolitics took middle stage this week, which (understandably) overshadowed financial indicators. However it was a fairly good week data-wise.
The headline CPI (2.7% y/y) and core CPI (2.6% y/y) have been each flat in December, indicating that tariff-related inflation has slowed, with the contribution of core items unchanged from November and down barely from current highs in August and September. Retail gross sales rebounded in November (up 0.6% month-on-month) with broad-based development. Manufacturing output in December (0.2% enhance from the earlier month) exceeded expectations (0.1% lower).
This stabilization of inflation and the resilience of consumption and manufacturing knowledge signifies that market expectations for a Fed charge lower this yr have fallen to 45 foundation factors (bps) from almost 60 foundation factors (bps) simply over every week in the past.
Elsewhere this week, fourth-quarter earnings season has begun for main banks, however the greatest information comes from TSMC, which introduced plans to extend capital spending by 37% this yr and “considerably broaden manufacturing capability” in 2028-2029 to account for AI demand.
So, whereas the online results of geopolitical occasions has been a setback in expectations for Fed charge cuts, the silver lining for AI demand was this week’s 1% decline within the Nasdaq 100® (blue line) and the almost 5bp rise in 10-year Treasury yields over 4.2% (black line).
subsequent week
Listed below are the highest occasions I am watching subsequent week:
November PCE Inflation and Thursday Spending Prelims. January PMI on Friday, Q3 GDP revision on Thursday, Supreme Courtroom ruling (if IEEPA tariffs are determined) on Tuesday
