What We Are Watching This Week
- Empire State Manufacturing Survey
- Housing starts and Permits
- Existing Home Sales
- US Leading Economic Indicators
Highlights From Last Week
- US Consumer Price Index
- US Producer Price Index
- US Retail Sales
U.S. stocks mostly rose, with the Nasdaq Composite leading gains at 2.58% for the week. Growth stocks outperformed value stocks for the second time this year, while small caps lagged. The S&P 500 and Nasdaq ended the week near record highs. Stocks surged on Thursday after President Trump delayed implementing new global tariffs, opting for a country-by-country approach by April 1, which reassured investors.
Canada’s main stock index declined on Friday following disappointing earnings from consumer discretionary companies Magna and MTY Food, while investors capitalized on recent gains from the previous session. The TSX Composite Index dropped 215.28 points to close at 25,483.23. Despite the decline, the index remained up by 40 points, or 0.16%, for the week. The Canadian dollar edged up by 0.10 cents to 70.57 cents U.S. On the economic front, motor vehicle sales drew investor attention, slipping to 135,500 units in December from 161,500 in November. Meanwhile, wholesale sales dipped 0.2% to $83.6 billion for the month. Conversely, manufacturing sales saw a modest increase of 0.3% in December, mainly driven by higher petroleum, coal, and food product sales.
In Europe, stocks climbed, with the STOXX Europe 600 rising 1.78% to a new record. Hopes for a resolution to the Ukraine-Russia conflict and strong earnings boosted sentiment. Germany’s DAX gained 3.33%, France’s CAC 40 rose 2.58%, and Italy’s FTSE MIB added 2.49%. The UK’s FTSE 100 edged up 0.37%. The UK economy unexpectedly grew by 0.1% in Q4 2024, defying forecasts of a 0.1% decline. Gains in services and construction drove the growth. The annual GDP growth for 2024 was 0.9%, up from 0.3% in 2023. Despite the positive data, the Bank of England’s Chief Economist warned against premature rate cuts.
On Wednesday, the US Bureau of Labor Statistics reported that the Consumer Price Index (CPI) rose 0.5% in January, pushing the annual inflation rate to 3%, exceeding forecasts. Core CPI, which excludes food and energy, increased by 0.4% monthly and 3.3% annually, which was also above expectations. Shelter costs remained a key inflation driver, rising 0.4% and accounting for 30% of the increase. Food prices climbed 0.4%, with egg prices surging 15.2% due to avian flu, while energy prices increased 1.1% as gasoline rose 1.8%. The report led markets to push back expectations for a Federal Reserve rate cut, with traders now anticipating a possible cut in September. Fed Chair Jerome Powell cautioned against overreacting to individual inflation reports, emphasizing reliance on broader economic indicators. Market expectations now suggest only one rate cut this year. The CPI increase erased wage gains, as inflation fully offset the rise in average hourly earnings. The inflation data complicates potential monetary easing despite political pressure from former President Donald Trump for lower interest rates ahead of new tariffs. Markets reacted negatively, with Dow Jones futures dropping over 400 points and bond yields spiking.1
The Department of Labor reported for the week ending February 8, the seasonally adjusted initial claims for unemployment benefits totaled 213,000, reflecting a decrease of 7,000 from the prior week’s revised figure. The previous week’s claims were adjusted upward by 1,000, from 219,000 to 220,000. The four-week moving average stood at 216,000, down 1,000 from the prior week’s revised average, which was increased by 250 from 216,750 to 217,000. Meanwhile, the total number of continued benefit claims across all programs for the week ending January 25 reached 2,282,321, marking an increase of 85,537 from the previous week. In the corresponding week of 2024, there were 2,160,218 claims filed across all programs.2
The Producer Price Index (PPI) rose by a seasonally adjusted 0.4% in January, slightly above the Dow Jones estimate of 0.3%, signaling persistent inflationary pressures. However, details in the report suggested easing price pressures in specific sectors, such as healthcare and domestic airfares. As Wall Street strategists interpreted the data as a mixed inflation signal, stock market futures moved higher while Treasury yields fell. Core PPI, which excludes food and energy, rose 0.3%, aligning with expectations. Over the past year, the PPI increased by 3.5%, still above the Federal Reserve’s target. Futures markets now anticipate the Fed will delay rate cuts until October. Despite PPI and CPI being key inflation indicators, the Fed prioritizes the Personal Consumption Expenditures (PCE) index, due later in February. Revisions to December’s PPI data showed a higher increase than initially reported, adding complexity to the inflation outlook. January’s data revealed a 0.6% rise in goods prices, driven by a 10.4% surge in diesel fuel and a 44% spike in egg prices due to avian flu. Services prices increased by 0.3%, led by a 5.7% jump in traveler accommodation services. Overall, the data suggests inflation remains elevated, delaying expectations for Fed rate cuts until later in the year.3
Retail sales fell 0.9% in January, following an upwardly revised 0.7% gain in December, significantly worse than the expected 0.2% decline, according to a Commerce Department report on Friday. The figures are adjusted for seasonality but not inflation, with prices rising 0.5% for the month. Excluding autos, sales dropped 0.4%, missing the consensus forecast of a 0.3% increase. Meanwhile, the “control” group, which excludes volatile categories and is used to calculate GDP, slid 0.8% after a revised 0.8% increase in December. With consumer spending accounting for nearly two-thirds of US economic activity, the weak sales data suggest a potential slowdown in first-quarter growth.
Among key sectors:
- Sporting goods, music, and bookstore sales plunged 4.6%
- Online sales declined 1.9%
- Motor vehicle and parts sales fell 2.8%
- Gas stations and food & beverage establishments saw 0.9% increases
Following the report, stock market futures remained slightly negative, Treasury yields dipped, and traders increased bets on a potential Federal Reserve rate cut as early as June. Some analysts believe the drop may not signal deeper economic trouble despite the sharp decline.4
On Friday, the Federal Reserve Board reported that US industrial production rose 0.5% in January, surpassing market expectations of 0.3%, according to the Federal Reserve. The increase was driven by a rebound in aircraft manufacturing following the resolution of a Boeing strike, which contributed 0.2 percentage points to overall growth. Despite this, manufacturing output declined by 0.1%, weighed down by a 5.2% drop in motor vehicle and parts production. Utilities output surged 7.2% due to increased heating demand from cold weather, while the mining index fell 1.2%.5
Next week, the Flash PMI data will offer early insights into global business conditions in response to recent tariff announcements. Key economic indicators, including UK inflation and FOMC meeting minutes, will shape market expectations on future policy decisions. Central banks in Australia and New Zealand are also expected to announce rate cuts. Since January’s PMI data, the economic landscape has shifted significantly. President Trump imposed tariffs on imports from Canada, Mexico, and China, with some delays. China responded with targeted tariffs, and the EU is considering similar measures. Rising geopolitical uncertainty has unsettled markets, with US equity investors showing declining risk appetite. Gold prices have surged, and the US dollar has weakened.
Additionally, disappointing non-farm payroll data and higher-than-expected US inflation have complicated the Fed’s policy stance. PMI data will be crucial in assessing global economic performance amid these developments. The US has outpaced other major economies in output growth, but its services sector slowed. Business confidence and hiring trends will be closely watched, with employment data particularly critical. Lastly, analysts will scrutinize the pricing impacts of tariffs, supply chain disruptions, and inventory trends to gauge inflationary pressures and broader economic outlooks.
| WK | Year to Date | |
| Dow | 0.55% | 4.71% |
| S&P500 | 1.47% | 3.96% |
| Nasdaq | 2.58% | 3.71% |
| S&P400 Mid-cap | -0.25% | 2.49% |
| Russell | 0.01% | 2.23% |
| TSX | -0.33% | 2.33% |
- https://www.bls.gov/cpi/news.htm
- https://www.dol.gov/ui/data.pdf
- https://www.bls.gov/news.release/ppi.nr0.htm
- https://www.census.gov/retail/marts/www/marts_current.pdf?utm_source=aposto
- https://www.federalreserve.gov/releases/g17/current/default.htm
Important Information:
Warren Gerow is an independent investment wealth consultant to Sightline Wealth Management.
Sightline Wealth Management LP (“Sightline”) is an investment dealer and is a member of the Canadian Industry Regulation Organization (CIRO) and the Canadian Investor Protection Fund (CIPF).
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