US Retail Sales came in weaker than expected today. However, the trend remains positive on a year-over-year basis. The slowdown is attributed to weaker demand due to the U.S. experienced sub-freezing temperatures and winter storms overwhelmed power grids in Texas and the Great Plains.

This comes when the US equity market is continuing to make all-time highs, though price action looks overdone relative to our risk ranges. Looking forward, retail sales are likely to improve significantly as stimulus checks from the government are sent out, bolstering demand. Overall, while the print is disappointing, the outlook is still positive.

The upcoming FOMC meeting on Wednesday will most likely be focused on term interest rates. Long-term rates in the US have been rising immensely due to rising inflation expectations as the economy rebounds from the pandemic recession. The question ahead of this FOMC meeting is how much long-term interest rate increases can the Fed tolerate?

The Fed has largely said it would be patient about inflation, so we think there is potential for the Fed to allow these moves to continue. After all, interest rates are still not at 2019 highs. If long-term rates continue to sell-off the way they have, the broad dollar should continue its bounce, particularly against EURUSD. There is evidence that even if the Fed decides to control long-term rates by increasing their asset purchases, EURUSD will continue to fall. Here’s a chart from Nordea showing EURUSD during QE and “Operation-Twist”- a program the Fed engaged in to bring down long-term rates.

People often compare the price of a stock relative to its earnings. Today, we think it makes more sense to compare stocks to the amount of money outstanding that can purchase it- i.e., we don’t think there’s a bubble (yet)!

US CPI once again came in at 1.4%, far from market expectations of a booming inflation environment. In fact, median CPI was actually negative!