Stock index futures ticked slightly higher as Wall Street watched headline producer price inflation fall more than anticipated and retail sales data declined.
“The big news overnight is that there is no big news overnight as the BoJ met economists expectation that they wouldn’t change anything on YCC today despite increasing market expectation that they would,” Deutsche Bank’s Jim Reid wrote. “The policy does seems unsustainable if current conditions persist though as since the last meeting on December 20th, they’ve spent $265bn (a whopping 6% of annual GDP!) buying bonds.”
The 10-year Treasury yield fell 13 basis points to 3.40%. The 2-year yield (US2Y) was lower by 9 basis points to 4.10%.
“We’d note that the 10yr Treasury yield is not exactly cheap here,” ING said. “It is practically at, or has been recently, some 150bp through the terminal funds rate being priced by the Fed funds future. That’s quite a spread.”
“History shows it has been wider, but not by much, and not for too long. History also shows that it is rare for it to trade through the funds rate by this much.”
The December PPI fell more than expected M/M to -0.5% compared to the consensus -0.1% figure. On an annual rate PPI reads at +6.2% versus the anticipated 6.8% level that was expected.
“PPI shows drop in wholesale goods inflation has spread to intermediate goods and is spreading to finished goods,” Kathy Jones, chief fixed income strategist at Schwab, tweeted.
At the same time retail sales dropped 1.1% in December compared to the forecasted -0.8% figure. Core retail sales dipped 1.1% versus the viewed -0.5% marker.
“The rate of growth of core retail sales – we exclude the volatile gas, autos, and food components – has slowed materially since last spring,” Pantheon Macro’s Ian Shepherdson said. “Consumers have shifted some of their spending towards services as Covid fear has subsided, but more recently we think people have become more cautious in the face of increased economic uncertainty and sharply higher borrowing costs.”
Also on the calendar, December industrial production is out right before the start of trading with a 0.1% drop expected. Shortly after the opening bell November business inventories and the January NAHB housing market index are released.
The Fed’s beige book comes out this afternoon.
Among active stocks, United Airlines rallied after a bullish profit forecast.