US retail data weak; China's CPI expected to slow

U.S. retail sales unexpectedly stalled, prompting markets to increase bets on interest rate cuts this year, with attention turning to the non-farm payrolls report due Wednesday. China's January CPI growth is expected to slow, while the decline in PPI is forecast to narrow.

Overnight Highlights

· The S&P 500 and Nasdaq closed lower on Tuesday, while the Dow Jones Industrial Average edged higher, setting a new closing high for the third consecutive session. U.S. Treasury yields fell after a series of data suggested the economy might be slowing, providing more room for the Federal Reserve to cut rates. Data showing a slowdown in U.S. economic growth weakened the dollar against major currencies. Oil prices declined as the market awaited directional cues from progress in U.S.-Iran diplomatic relations, efforts to end Russia's war in Ukraine, and upcoming U.S. economic data and crude inventory figures. Gold prices fell more than 1% as the market consolidated ahead of U.S. jobs and inflation data that could offer more clues on the Fed's rate outlook.

International News

· U.S. December retail sales growth stalled, highlighting weak year-end consumption. The employment cost index for Q4 2024 recorded its smallest increase in four years. Money markets raised bets on rate cuts this year.

· A New York Fed report showed the household loan delinquency rate rose to its highest level in nearly a decade in Q4. Additionally, the U.S. small business owner confidence index fell in January for the first time in three months.

· The Cleveland Fed President expects the Fed could keep rates unchanged for "quite some time." The Dallas Fed President stated that falling inflation alone is not enough to justify further rate cuts unless there is substantial weakness in the labor market.

· The U.S. will release January non-farm payrolls data on Wednesday. Trump's trade advisor Navarro said expectations for monthly job gains need to be significantly lowered due to the impact of mass deportations of undocumented immigrants on the labor market.

· The UK government personnel turmoil continues, with Cabinet Secretary Chris Wormald reportedly set to become the third senior official to depart within days. Starmer downplays Labour Party internal divisions, targeting the Reform Party.

· French President Macron said Trump could impose tariffs on the EU this year over digital regulation issues. Finland expects the U.S. might use the Munich Security Conference to reshape the currently tense transatlantic relationship.

· Google parent Alphabet (GOOGL.US) raised nearly $32 billion in debt in less than 24 hours, with its 100-year sterling bond receiving nearly ten times oversubscription.

· Abu Dhabi investment vehicle MGX is reportedly close to a deal to participate in Anthropic's latest funding round exceeding $20 billion.

· Barclays (BCS.US) 2025 results beat expectations, pledging to return at least £15 billion to shareholders by the end of 2028. The bank also expanded its bonus pool by 15%, benefiting all staff.

· Poland and Estonia assess that Russia is only feigning interest in peace talks, hoping to restore relations with the U.S. but with no intention to end the war. Turkey's Foreign Minister said the country could be dragged into a regional nuclear arms race because of Iran.

· Wealth management firms, including Charles Schwab, plunged across the board due to concerns about the industry's prospects sparked by a new AI tool developed by Altruist for tax strategy planning.

· Goldman Sachs (GS.US) CEO said the market sell-off in software stocks is somewhat overdone, and the U.S. economy is expected to maintain strong growth momentum this year.

· Paramount improved its hostile takeover offer for Warner Bros. Discovery (WBD.US), stating it would pay a $2.8 billion termination fee if Warner ends its deal with Netflix (NFLX.US). See: "[Market Review] Netflix (NFLX.US): Solid Q4 Results but Conservative Guidance, All-Cash Acquisition Pressures Shareholder Returns"

Greater China News

· China will release January inflation data on Wednesday, with CPI growth expected to slow to 0.4% year-on-year, while the PPI decline is forecast to narrow to 1.5%, driven by broad-based increases in material prices.

· The People's Bank of China released its quarterly monetary policy execution report, pledging to continue implementing a "moderately accommodative" monetary policy and conduct regular treasury bond buying and selling operations.

· Chinese President Xi Jinping called for strengthening coordinated development in the Beijing-Tianjin-Hebei region and deepening the integration of technological and industrial innovation.

· Chinese Premier Li Qiang urged the rational development of rare earth resources and expanding their technological applications in new energy, new materials, and other fields.

· U.S. Treasury Secretary Besant said China's massive trade surplus must be addressed, the U.S. is not seeking decoupling from China, and its goals are fair competition and risk reduction.

· MSCI announced index constituent changes. The three largest additions to the MSCI Emerging Markets Index are Hongqiao Holdings (2379.SZ), Century Huatong (2602.SZ), and Hongjin Precision (6088.HK/7769.TW). Stocks like Vanke H-shares (2202.HK) and Fosun International were removed from the MSCI China Index.

· Alibaba (BABA.US/9988.HK) launched the AI model RynnBrain, entering the robotics AI track.

· The U.S. expects China to continue actively stockpiling crude oil in 2026, gradually slowing the pace next year.

· The Dalian Commodity Exchange will adjust the price limit ranges and margin requirements for futures contracts of iron ore and other products around the Spring Festival.

· Country Garden (2007.HK) and its Chairperson Yang Huiyan and other executives were publicly criticized by the Shanghai Stock Exchange and recorded in the integrity file for the company's failure to timely disclose debt overdue situations.

· Venture capital firm Steadview Capital, backed by the Johnson family of Fidelity, has reportedly shelved plans to sell its stakes in dozens of Chinese tech companies.

Commodities & Forex Markets

· The Bloomberg Dollar Index fell for a third consecutive day after unexpected stagnation in U.S. December retail sales; the yen outperformed G-10 currencies. See: "[Market Review] The Market Paradox and Yen Opportunity After the LDP's Landslide Victory"

· Oil prices edged lower as traders focused on Middle East supply risks. Gold fluctuated around $5,000.

Earnings & Economic Data Focus

· U.S. January Unemployment Rate (Prev: 4.40%, Forecast: 4.40%)

· U.S. January Non-Farm Payrolls (Seasonally Adjusted) (in thousands) (Prev: 5, Forecast: 7)

Source: Golden Horse Capital Management (Hong Kong) Limited

Author: Terry Chow

Proofreader: Penny Yang