Summary
United States: U.S. Economy Pushing Through Omicron and Inflation Headwinds
- Retail sales jumped 3.8% in January, well above expectations. Industrial production strengthened 1.4% during the first month of the year. Housing activity remained robust in January—while housing starts fell 4.1%, building permits edged up 0.7% and existing home sales jumped 6.7%. Meanwhile, January’s Leading Economic Index declined 0.3% and the Producer Price Index leaped 1.0%.
- Next week: New Home Sales (Thurs), Personal Income & Spending (Fri), Durable Goods (Fri)
International: Japanese Growth Rebounds as Economy Reopens
- Japan’s GDP rebounded in the final quarter of 2021, with activity recovering after the state of emergency that was in place for Tokyo and surrounding areas was lifted. Q4 GDP grew at a 5.4% quarter-over-quarter annualized rate, with consumer spending especially strong. However, there are signs the economy has started on a soft note in 2022, and with inflation benign, the Bank of Japan’s easy monetary policy looks set to remain in place for some time.
- Next week: Eurozone PMIs (Mon), U.K. PMIs (Mon), RBNZ Rate Decision (Wed)
Interest Rate Watch: Minutes and Fed Speak Tamp Down Prospect of 50-bp Hike in March
- Minutes from the FOMC’s January meeting released this week signaled a rate hike is imminent but did not indicate that officials were itching to lift the fed funds rate by an unusually large 50 bps. With Fed speakers this week seemingly less enthusiastic about the prospect of a 50 bps hike, market expectations for such a move have fallen back below 50%.
Topic of the Week: Russia-Ukraine Conflict Not a Global Economic Risk
- Tensions tied to the Russia-Ukraine situation have intensified in recent days. Although we do not have any particular insight into conditions on the ground or wish to speculate on the mindset of leaders involved, assessing the potential economic and financial market reaction to an escalation is still a valuable exercise.
