December was a tough month for retailers, with sales declining to 6.02% compared to the year prior - the lowest since over a year.
Economic data in the US was weaker than expected across the board in December, with retail sales, PPI, and industrial production/capacity utilization all below forecasts. Retail sales data fell from 6.48% to 6.02% year-on-year, the lowest in more than a year, and production costs decreased to -1.1% in December.
This caused Treasury yields to drop significantly, with two-year yields decreasing by 10.5 basis points and 10-year yields decreasing by 14 basis points. European yields also fell in response to the news.
The US stock market reacted positively to the news, taking pressure off the Federal Reserve to raise interest rates. The Nasdaq technology index, which is the most sensitive to interest rates, initially rose more than 1% upon the news, but the jump was short-lived and it fell later.
After the economic figures were revealed, the Morgan Stanley Chief Investment Officer expressed his opinion on CNBC that United States stock markets were overvalued, which caused Wall St. indices to lose all their gains and plummet into negative territory. In reality, these remarks served as the perfect justification for traders to take profits after extended rallies, when the markets were hovering near significant technical resistance levels.
Yesterday's release of the company's earnings had no significant impact on stocks. Today, all our eyes are on Netflix, which is due to report today.
Despite this, interest rates on Treasury bonds remained at their lowest level, with the 10-year bond hovering around 3.43%. This implies that expectations about interest rates remain intact, i.e., of more moderate increases in the future.
Despite this, the US dollar, which had weakened considerably during the day, partly reversed its movement with a technical upward correction. The general trend for the US currency remains bearish.
The USD/JPY pair attracted special interest in the market after the Bank of Japan decided not to make any changes to its monetary policy (the market had expected an announcement that would allow for higher interest rates), causing the yen to weaken against the dollar during the early morning.
However, the downward pressure on the US dollar resumed later, taking the pair to the 127.50 zone. The general consensus among market participants is that this trend will continue to 126.50 and lower.
Sources: Bloomberg, Reuters