Summary
United States: Do Not Go Quietly Into That Good Night
- Resilience was on full display in this week’s economic indicators and market-based rate expectations moved closer in line to the forecast we have maintained for months: that the Federal Reserve will guide its main borrowing rate higher still to 5.25% and hold it there through year-end.
- Next week: Existing Home Sales (Tue), Personal Income & Spending (Fri), New Home Sales (Fri)
International: Inflation Is Hot and Growth Is Not. What’s New?
- In good news, inflation in the U.K. receded for the third straight month in January, with the headline rate coming in at 10.1% year-over-year. In bad news, this is still five times the Bank of England’s 2% target. Elsewhere, Japan’s economy rebounded 0.2% quarter-over-quarter in Q4 after a negative print in Q3, and we expect these mixed growth trends to continue this year. Down under in Australia, the job market failed to regain its footing last month, with employment declining for the second month in a row. Notably in contrast to the December jobs report, this drop in employment was completely due to a decline in full-time employment.
- Next week: Eurozone PMIs (Tue), U.K. PMIs (Tue), Canada CPI (Tue)
Interest Rate Watch: Rates Market Reset
- Treasury yields have climbed higher in recent weeks amid a string of especially hot economic data. The yield on a 10-year Treasury note is nearly back to where it started the year, and the two-year note yield is above its 2023 starting point.
Topic of the Week: The Bottom Line: Margin’s Getting Squeezed
- S&P 500 profit data show that even as sales continued to grow in the fourth quarter, margins compressed. We won’t get economy-wide margins until the end of March, but we look for a similar squeeze. Declining profitability can motivate firms to keep prices high or force cost-cutting to protect the bottom line; neither is good for the economy.
