US Treasury yields were mixed, equities gained, Nvidia rose, and Tesla fell. The dollar strengthened, oil declined, gold hit record highs, and Bitcoin dropped by nearly 6%.

U.S. Treasury yields ended the week with mixed results. Short-term rates saw a slight increase, while long-term rates experienced a decline. The latest jobs report played a role in driving long-term bond yields higher, pushing the 10-year yield from 4.44% to 4.51%. However, the yield ultimately closed the week at 4.496%, marking a decrease compared to the previous week.

Equity markets closed the week in positive territory, with the Nasdaq 100 gaining nearly 2%. Small-cap stocks outperformed large-cap counterparts. Nvidia surged more than 8%, recovering from last week's decline, while Tesla fell over 6% amid investor concerns regarding Elon Musk’s increasing political involvement.

The US dollar strengthened against the euro, rising to 0.9681. Crude oil (WTI) prices declined 3.73%, pressured by rising US crude inventories and Donald Trump’s renewed pledge to expand domestic oil production. Meanwhile, gold climbed 1.94%, marking its sixth consecutive week of gains and reaching new all-time highs. In contrast, Bitcoin fell 5.97%.

U.S. inflation rose in January, sparking a hawkish Fed stance. Retail sales dropped, and industrial production grew, but tariff risks and inflation remain concerns.

U.S. inflation continued to rise in January, marking the fourth consecutive month of increases, with the Consumer Price Index (CPI) up 3% YoY and 0.5% MoM, surpassing expectations. Core inflation, excluding food and energy, rose 3.3% YoY and 0.4% MoM, primarily driven by shelter and transportation costs. This persistent inflation, combined with potential tariffs under Trump's proposals, has led to a more hawkish Federal Reserve stance and lowered market expectations for rate cuts. Meanwhile, January retail sales fell 0.9%, driven by weak consumer confidence, weather, fires, and tariff uncertainties, while industrial production grew 0.5%, largely due to a surge in utilities. However, manufacturing output declined slightly, and future industrial production could be impacted by retaliatory tariffs. Overall, inflationary pressures and tariff risks are likely to maintain volatility in consumer spending and industrial activity throughout the year.

US inflation rose for the fourth straight month, exceeding expectations, reinforcing a hawkish Fed stance, and reducing market expectations for near-term rate cuts amid persistent price pressures.

Inflation continues to be a major concern, worsened by the potential tariffs proposed by Trump. Inflation surged in January for the fourth consecutive month, hitting its highest level since June 2024. Headline CPI rose 3% year-over-year (YoY) and 0.5% month-over-month (MoM), surpassing the 0.3% consensus. Excluding food and energy, core CPI increased 3.3% YoY and 0.4% MoM, marking the highest monthly core inflation in two years. The main drivers of the core CPI increase were shelter (up 4.4%) and transportation (up 8%). A closer look at inflation's key drivers shows notable price hikes in used cars and trucks (up 2.2% MoM), motor vehicle insurance (up 2%), medical products (up 1.2%), and airfares (up 1.2%). On the other hand, apparel prices dropped 1.4%, medical services remained unchanged, and new car prices stayed steady. Shelter costs, which make up 42.5% of core CPI, rose 4.4% YoY, with rent for primary residences up 4.2%. However, data from the Cleveland Fed on new rental contracts hints at a potential slowdown in rental price growth later in 2025, which could help ease inflation. Despite this, persistent price pressures, coupled with tariff risks, have led markets to reassess their expectations for Federal Reserve rate cuts. Currently, only 18 basis points of a 25-basis-point cut is priced in for September, with 26 basis points priced in for the entire year. This data strengthens expectations of a more hawkish stance from the Federal Reserve in the near future.

We expect the Federal Reserve to keep interest rates unchanged for longer than the market anticipates. Given persistent inflationary pressures and the potential impact of new tariffs, we believe the Fed may implement only one rate cut or possibly none if inflation accelerates further.

January U.S. retail sales fell by 0.9%, worsened by weather and fires, with weak consumer confidence and potential tariff confusion contributing to reduced spending on big-ticket items. This marks the worst data since March 2023.

The start of 2025 in the U.S. has been weaker than expected, with poor consumer spending and manufacturing figures, likely influenced by cold weather and the Los Angeles fires. January retail sales dropped by 0.9% month-on-month, significantly worse than the anticipated 0.2% decline, with the control group—excluding volatile categories such as autos, food services, building materials, and gasoline—also falling 0.8%, well below the consensus forecast of +0.3%. This points to weak volume sales growth, which directly impacts GDP. Auto sales were down 2.8%, reflecting a notable drop in unit volume, while furniture sales fell 1.7%, electronics dropped 0.7%, health spending declined 0.3%, clothing dropped 1.2%, sporting goods saw a 4.6% decrease, and internet sales fell 1.9%. Surprisingly, eating and drinking out rose by 0.9%, despite the adverse weather and fires. One possible contributing factor is confusion over the timing of tariff increases, as consumer confidence fell by a significant margin in January, partly due to concerns about rising prices. This led to a marked rise in price expectations, with many respondents anticipating a worse buying environment for big-ticket items, which are often imported. Households may have delayed or avoided purchases, fearing immediate tariff impacts, or maybe curbing spending in anticipation of higher food and energy costs.

We expect consumer spending to remain volatile during the first half of the year, influenced by statements from Trump on tariffs. Consumer sentiment is likely to worsen in the coming months due to a rebound in inflation rates.

U.S. industrial production rose 0.5% in January, with utilities surging 7.2%. Manufacturing dropped 0.1%, while Trump’s tariffs could impact future production through retaliatory measures.

Industrial production in the U.S. rose by 0.5% MoM in January, exceeding the 0.3% consensus forecast, marking its highest level since September 2022. This increase, coupled with an upward revision for December, brought industrial production to a 2.0% year-on-year growth rate, the strongest pace since October 2022. However, manufacturing output fell by 0.1%, missing the expected 0.1% increase, while the utilities component surged by 7.2%, one of the largest increases in history. Motor vehicle and parts production dropped by 5.2%, and mining declined by 1.2%. Excluding motor vehicles and parts, manufacturing grew by 0.2%. Weather-related factors likely impacted these results, with cold temperatures driving a sharp rise in utility output and potentially constraining manufacturing and mining activity. Overall, the latest manufacturing data suggest a subdued start to 2025. Future industrial production could be influenced by Trump’s tariffs, as affected countries might retaliate with their own tariffs on U.S. goods, further impacting the sector.

We expect industrial production to remain relatively unchanged during the first half of the year, as markets await potential tariffs to be imposed by Trump.