Thursday, Jan 19, 2023

“A journey of a thousand miles must begin with a single step.” – Lao Tzu ||

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MARKETS

Bad news is bad news again?

Optimism about a soft landing started to wane yesterday as US data gave us a glimpse of the effect the Fed’s hiking strategy is having on the consumer.

December US retail sales figures showed a drop of 1.1%, weaker than the expected 0.8% decline and the 1% drop in November, and the steepest month-on-month drop since January 2022. Recent retail sales slumps have been largely shrugged off by the market, but this one is different in that the declines are broad-based, affecting 10 out of 13 categories.  

We also saw producer prices soften: the PPI for final demand fell 0.5% last month, the most since April 2020 and notably lower than both the 0.1% drop expected by surveyed economists and the 0.2% increase in November. The year-on-year increase was 6.2%, which showed a welcome deceleration from November’s 7.3% and slower even than the expected 6.8%.

Surely this is good news in that it reflects a reduction in inflationary pressures? Nope, it seems that we have moved on from the “bad news is good news” phase of just a few weeks ago, when signs of a slowdown meant that surely the Fed would ease off on rate hikes. Now, a slowdown seems to imply, well, a slowdown which is not great for the global economic outlook, no matter what growth China may be able to produce.