US retail sales disappointed in January

US retail sales disappointed in January as the headline measure fell 0.8% m/m, the biggest drop in a year. This was compared with the predicted 0.2% contraction and down from 0.4% growth in December during the holiday season. Stripping out automotives and gasoline, the fall was 0.5%, compared with a predicted 0.2% growth. Nine out of the 13 categories measured saw a fall in sales, suggesting that the remarkable resilience of the US consumer through the period of tight monetary policy could be starting to wane. Industrial production data for January also disappointed as it contracted 0.1% m/m, and December’s growth was revised down from 0.1% to flat. The consensus prediction for January had been an expansion of 0.2%. Factory production declined 0.5% and mining 2.3%, offset by a 6% rise in utilities. Meanwhile, initial jobless claims in the week to February 10 were 212,000, lower than the predicted 220,000.

The UK contracted 0.3% q/q in Q4, confirming that the country fell into a technical recession in the second half of 2023, following the 0.1% contraction in Q3. The decline was broad based, with services falling 0.2% q/q, production 1.0%, and construction 1.3%. The Q4 figures were worse than expected, with consensus estimates putting the headline GDP contraction at -0.1%. Growth over 2023 as a whole was marginal at 0.1% as elevated inflation and tight monetary policy has weighed on consumption. Frequent industrial action has also weighed on output.

CPI inflation in Saudi Arabia was 1.6% y/y in January, up marginally from the 1.5% recorded in December. Many of the components of the basket were deflationary, with tobacco down 0.5% y/y%, transport down 1.1%, and clothing and footwear down 4.1%. However, food and beverages prices were 1.1% higher, while housing and utilities continued to be the key driver of growth as prices rose 7.8% y/y, up from 7.5% in December. On a monthly basis, headline CPI was up 0.3%, accelerating from 0.1% in December.

Today’s Economic Data and Events

11:00 UK retail sales ex auto fuel, January, % y/y. Forecast: 1.7%

19:00 US University of Michigan sentiment index, February. Forecast: 80.0

Fixed Income

• Yields on USTs fell back yesterday as the weak retail sales data bolstered the argument for a more dovish approach from the Fed, contrary to the implications from the upside surprise in January inflation reported earlier in the week.
• Yields on the 10yr fell 3bps to end Thursday at 4.2300%, while the 2yr yield was broadly flat at 4.5740%.
• There was more pushback against a dovish outlook from Fed officials, however, as Atlanta Fed President Raphael Bostic said that there was no need to cut rates early.

FX

• The weak retail sales data weighed on the dollar yesterday and it lost ground against all of the majors. The EUR gained 0.4% to 1.0772, while GBP added 0.3% to 1.2600.
• The yen gained 0.4% to come back within the 150 mark with a close of 149.93.

Equities

• The weaker retail sales data boosted US equity markets yesterday. The NASDAQ, the Dow Jones, and the S&P 500 closed up 0.3%, 0.6%, and 0.9% respectively.
• Locally, the ADX closed up 0.1% and the DFM 0.4%. The Tadawul gained 0.4%.

Commodities

• The IEA left its oil market projections for 2024 roughly unchanged, expecting demand growth of 1.2m b/d this year with emerging economies providing all of the increase. Demand in OECD economies is set to decline by about 120k b/d in 2024. Supply growth outside of OPEC+ will be relatively strong at 1.6m b/d with gains coming from the US, Brazil, Guyana and Canada, though at a much slower pace than the 2.4m b/d recorded in 2023.
• Oil prices rose on the back of a general risk-on tone yesterday, with Brent futures climbing 1.5% to close at USD 82.9/b, while WTI closed up 1.8% at USD 78.03/b.