Daily Economic Update: January 17, 2025

Does anyone wonder what happened to the drones that people were seeing in NJ? I feel like that fell off the radar.

Yesterday’s retail sales data mostly missed expectations but the core retail sales number (ex. Autos, gas, bldg materials) was 0.7% v. 0.4% est. Jobless claims remain benign, Philly Fed (always volatile) seemed remarkably good. Maybe the cautionary data points as it relates to inflation were that export prices rose again and that Philly Fed prices paid and prices received components were up.  Yields fell and stocks were mostly sideways.  Overall on the week, inflation readings turned out to be a little better than expected and that includes readings from the U.K. and the previously relentless rise in yields decelerated and declined.   

The Bessent hearing didn’t send bond yields higher as some had posited they would.  High- level, he supports the extension of the 2017 tax cuts, favors tariffs, expressed a belief in an independent Fed and maintaining the dollar as a global reserve currency and that fiscal spending is out of control.  In other words he said about everything anyone nominated for Treasury Secretary would likely say.

Waller seemed to state a belief that inflation is likely going to continue to fall and the Fed will make cuts in 2025.  Of course part of Waller's belief is conditioned on inflation coming down which is likely conditioned on fiscal policies, but that was a relatively “dovish” Waller in my view.

Overnight we get a bunch of Chinese data that may or may not reveal more about the doldrums of the Chinese economy.

Going into the day we’ll start with the 2Y is at 4.23%, the 10Y is at 4.62%, both down about 15bps on the week.  The S&P is at 5,937, despite Apple getting smoked on the day.  On the day ahead it’s building permits, housing starts and industrial production.

As we wrap up the week, a week that featured inflation data, it begs the question, what investments are good inflation hedges?   Cumulatively CPI-U is up something like 20% since 2021, how have some investments that are considered “inflation hedges” performed.  The answer isn’t easy but if you look at a price chart for gold-miners GDX they have underperformed both spot gold and inflation.  If you look at a price chart for some apartment REITs they have also underperformed.  Investments in the S&P 500 and in a broad basket of commodities via something like ticker GSG would have looked to have done better. I don’t know what the point of this paragraph is, other than to say there’s a lot of moving pieces in the economy and markets and things that you think should work in certain environments, don’t always.

XTOD: “Senator just to be clear, China will build 100 new coal plants this year. There is no “clean energy” race… there is just an energy race.”

XTOD: China is experiencing a complete financial crash. China’s 10Yr govt bonds yield 1.65%, their ‘policy overnight rate’ sits at 1.5%, their real estate collapse continues (Vanke 2025 bonds collapsing this week), and overnight rate just spiked to 16%. Complete disaster for xi.

XTOD: The point is the US (and other countries) should have much more intelligent (and much less dogmatic) discussions about the impact of global trade, trade imbalances, and savings imbalances on domestic economies, and on the optimal role of manufacturing.

XTOD: Crazy how fast Waller flipped from the voice of reason at the Fed to just another econ slicing the data arbitrarily to pursue his own political agenda (he clearly wants to replace JPOW)

XTOD: Jensen Huang: Excellence is the capacity to take pain

https://x.com/Geiger_Capital/status/1879929226973024400

https://x.com/Jkylebass/status/1879869755240431712

https://x.com/michaelxpettis/status/1879830236944281993

https://x.com/negitrage/status/1879917006197235860

https://x.com/FoundersPodcast/status/1879930342951538735