Yields Fall After Surprise Retail Sales Decline

Rates drop on weak retail sales while SPX climbs to a new all-time high. Swap rates and Treasury yields plummeted to intraday lows immediately after retail sales data this morning, falling nearly ~10bps before rising throughout the remainder of the session. Initial jobless claims contributed to the move higher, as claims (212k) were the lowest in a month and showcased a strong labor market. Elsewhere, the SPX yet again made history after a ~0.60% rally to a new all-time high, now at 5029. Markets are now focused on PPI data, set for release tomorrow morning.

Retail sales decline after the holiday season. Retail sales missed expectations across all measurements in January. Headline retail sales declined 0.8% MoM, the most since last March, while December’s figures were revised downward to 0.4%. Spending declined in 9 of 13 categories in the report, led by construction materials stores and auto dealers. Economists largely pin the decline on colder weather; Chief Economist at Comerica Bank Bill Adams said, “This weakness typically reverses quickly as weather returns to normal and people catch up on spending plans delayed by the cold and snow.”

Core YoY producer price inflation expected to drop to multiyear lows. Though tomorrow’s PPI slate is expected to reveal mixed disinflationary progress, core YoY PPI is expected to drop to 1.6% in January from 1.8% previously, its lowest level since hitting 1.4% in December 2020. Furthermore, headline YoY PPI should decline from 1.0% to 0.6%. On the flip side, core and headline MoM figures are expected to rise to 0.1% from 0.0% and -0.1%, respectively.