The US consumer may be weakening…

Thoughts of the Day

US Retail Sales dropped by -0.8% month-on-month, the largest decline since March 2023, and only grew by +0.6% year-on-year, the smallest increase since May 2020, indicating potential consumer spending weakness. Export and import prices also decreased, suggesting diminishing inflation concerns. This could lead the Federal Reserve to focus less on inflation and more on combating disinflation, potentially resulting in lower interest rates and a favorable environment for risk assets.

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Day Ahead

The US Producer Price Index is expected to show that prices rose +0.6% Year-on-Year in Jan, down from +1.0% in Dec. 

US University of Michigan Consumer Data will also be released.

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What Happened Yesterday

Market Movements as of New York Close 15 Feb 24

Bostic (current voter, known dove):
“Fed does not face urgency to cut rates given the current economy. Fed likely to soon contemplate cutting rates. Unlikely January CPI signals a big change in the trend of weakening inflation.”
(Bostic is as dovish as before. )

ECB President Lagarde testimony before the Committee on Economic and Monetary Affairs of the European Parliament, in Brussels: “The current disinflationary process is expected to continue, but the governing council needs to be confident that it will lead us sustainably to our 2% target. We will continue to follow a data-dependent approach. The latest data confirm the ongoing disinflation process and is expected to bring us gradually further down over 2024.” Reaction in the EURUSD was muted.

In January 2024, US retail sales experienced a decline of -0.8% from the previous month, a lot lower from the revised increase of +0.4% in December (from +0.6%) and underperforming expectations of a -0.1% decrease. This represents the most significant drop in retail sales since March 2023, largely attributed to the post-holiday season slowdown and colder weather conditions. On an annual basis, retail sales in the United States saw a modest increase of +0.6% in January 2024, marking the smallest yearly growth since a decline in May 2020, after adjusting December’s growth down to +5.3% from +5.6%.

The US Treasury Yield curve inversion widened to 0.32% as the US 2-year bond yield remained at 4.56% while 10-year yield slipped -0.03% to 4.24%.

The US stock futures barely budged through the Asian and London trading sessions with the S&P 500 futures rising a mere +0.03% just before the New York session began.

The US stock market opened almost unchanged from Wednesday. It was an active trading day with a dip intraday but markets eventually recovered to close the day in the green. As a result, the S&P 500 gained +0.58% (high: +0.64%, low: -0.02%), the Dow Jones rose +0.91% (high: +0.93%, low: -0.07%) while the Nasdaq edged +0.21% higher (high: +0.32%, low: -0.48%).

The crypto market continues to creep higher as sentiment in the market remains strong.
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Headlines & Market Impact

UK economy slipped into technical recession at the end of 2023

Notable Snippet: The U.K. economy slipped into a technical recession in the final quarter of last year, initial figures showed Thursday.

The Office for National Statistics said U.K. gross domestic product shrank by 0.3% in the final three months of the year, notching the second consecutive quarterly decline.

Though there is no official definition of a recession, two straight quarters of negative growth is widely considered a technical recession.

Economists polled by Reuters had produced a consensus forecast of -0.1% for the October to December period.

All three main sectors of the economy contracted in the fourth quarter, with the ONS noting declines of 0.2% in services, 1% in production and 1.3% in construction output.

Across the whole of 2023, the British GDP is estimated to have increased by just 0.1%, compared to 2022. For the month of December, output shrank by 0.1%.

U.K. Finance Minister Jeremy Hunt said that high inflation remains “the single biggest barrier to growth,” since it is forcing the Bank of England to keep interest rates firm and stymie economic growth.

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Nvidia holdings disclosure pumps up shares of small AI companies

Notable Snippet: On Wednesday, Nvidia disclosed in a regulatory filing that it has stakes in a handful of public companies: Arm, SoundHound AI, Recursion Pharmaceuticals, Nano-X Imaging, and TuSimple.

With the exception of Arm, which topped $130 billion in market cap recently, shares of the Nvidia-backed companies soared Thursday following the 13F filing, a form that must be submitted by institutional investment managers overseeing at least $100 million in assets.

SoundHound, which uses AI to process speech and voice recognition, jumped 67% on Thursday, after Nvidia disclosed a stake that amounted to $3.7 million at the time of the filing. Nvidia invested in SoundHound in 2017 as part of a $75 million venture round.

SoundHound went public through a special purpose acquisition company in 2022, and Nvidia was named in its presentation as a strategic investor.

Nano-X uses AI in medical imaging. Nvidia’s disclosure of a $380,000 investment in the company sent the stock up 49% on Thursday. Nvidia’s involvement dates back years to a venture investment in Zebra Medical, an Israeli medical imaging startup. Nano-X acquired Zebra in 2021.

TuSimple, an autonomous trucking company, rocketed 37% on Thursday after the disclosure of Nvidia’s $3 million stake. The share rally comes a month after the company announced plans to delist from the Nasdaq due to a “significant shift in capital markets” since its 2021 IPO. TuSimple debuted at $40 a share and now trades for roughly 50 cents.

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US House passes bill to reverse Biden’s LNG pause

Notable Snippet: A bill to strip the power of President Joe Biden’s administration to freeze approvals of liquefied natural gas exports passed in the Republican-controlled U.S. House of Representatives on Thursday, but faces an uphill battle in the Senate.

The House approved the bill sponsored by Representative August Pfluger of gas-producing Texas 224-200 on a mostly party-line vote.

The legislation needs to be passed in the Democratic-controlled Senate and signed by Biden to become law, both of which are unlikely.

ClearView Energy Partners, a nonpartisan policy research group, called the bill more of a “messaging effort and a start to debate than an end to the pause,” and said it was unlikely to clear the Senate.

The bill strips the power to approve the exports from the Department of Energy and leaves the independent Federal Energy Regulatory Commission as the sole body approving LNG projects.Biden paused the approvals late last month for exports to big markets in Europe and Asia in order to take a “hard look” at environmental and economic impacts of the booming business.

The United States became the largest LNG exporter last year, and its exports are expected to double by the end of the decade.

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Stock Indices

Phan Vee Leung
CIO & Founder, TrackRecord