Summary
United States: The Pain Is Spreading
- The housing sector has borne the brunt of the Fed’s efforts to slow the economy, and this week’s data showed the industry continues to reel. But pain is now clearly spreading beyond housing with grim reports on retail sales and manufacturing activity this week.
- Next week: Leading Economic Index (Mon), Q4 GDP (Thurs), Personal Income & Spending (Fri)
International: Bank of Japan Maintains Accommodative Monetary Policy for Now
- At a widely anticipated Bank of Japan (BoJ) monetary policy meeting, the central bank pushed back against expectations for a further policy adjustment, maintaining its accommodative monetary policy stance for now. In particular, the BoJ maintained a zero percent target for 10-year Japanese government bond yields, with an unchanged tolerance band of plus or minus 50 bps around that target. Elsewhere, Chinese activity was firmer than expected late last year, as Q4 GDP was flat quarter-over-quarter, and December retail sales and industrial output also surprised to the upside.
- Next week: Eurozone PMIs (Tue.), Australia CPI (Wed.), Bank of Canada Policy Announcement (Wed.)
Credit Market Insights: Corporate Bond Yields in a Debt Ceiling Showdown
- The mounting debt ceiling showdown in 2023 will be an event for credit markets to watch closely. In the period around the 2011 debt ceiling standoff, the absolute level of investment grade corporate bond yields remained almost entirely unchanged. However, the plunge in Treasury yields translated into a widening of spreads on investment grade corporate bonds.
Topic of the Week: The Fed’s Reach Extends Beyond the Housing Market
- Qualitative accounts from the January Beige Book support our view that the economy is not currently in recession, but the effects of monetary tightening are beginning to materialize in the broader economy. The survey also suggests that population growth acts as a hedge against economic declines.
