Interest rates are plunging following a morning featuring multiple weaker-than-anticipated economic data points that lifted the chances of three Fed cuts this year. Bad numbers are indeed good news for investors today, as those sinking yields bolster the cyclical trade, sparking a continuation in market rotation with the Dow Jones Industrial Average hitting another record, marking its third consecutive session of the benchmark reaching a fresh peak. Driving loosening financial conditions were retail sales, the employment cost index and small business optimism all missing estimates and indicating softening trends regarding household shopping, wage pressures and entrepreneurs\u2019 sentiment. However, a modest acceleration in ADP\u2019s weekly jobs figures quelled slowdown concerns. In trading, domestic equity indices are seeing higher prices across the board as 8 of the 11 major sectors advance, with consumer discretionary, utilities and real estate leading while staples, energy and financials retreat. The Treasury curve is descending in bull-flattening fashion as the charges for duration drop faster than the shorter-end of the complex, which is slipping at a slower pace. Cheaper borrowing is taking the greenback south too on narrowing differentials, but the depreciating dollar isn\u2019t supporting commodities, which are falling victims to the sluggish activity statistics, although lumber is appreciating on lighter mortgages brightening the outlook for construction. Elsewhere, crypto is dropping, forecast contracts are catching bids and volatility protection instruments are near their flatlines as participants remain cautious about tomorrow\u2019s nonfarm payrolls and the accompanied annual revisions that could shave off a heavy chunk of the previously reported gains.<\/p>\n\n\n\n
Shopping trends were disappointing to end last year with this morning\u2019s delayed retail sales result posting weakness in the majority of categories. The flat December headline number missed the anticipated 0.4% month-over-month (m\/m) growth rate by a mile and then some and the control figure, which serves as a critical input for the government\u2019s gross domestic product calculation, contracted 0.1%, also below the expected 0.4%. Both figures declined from November\u2019s expansions of 0.6% and 0.2%. The following sectors and the extent of their declines pulled down the headline m\/m result:<\/p>\n\n\n\n
Conversely, the building material, sporting goods, gasoline station, food market and ecommerce components climbed 1.2%, 0.4%, 0.3%, 0.2% and 0.1%.<\/p>\n\n\n\n
Wages pressures softened to end the year, according to this morning\u2019s Employment Cost Index. Compensation expenses rose 0.7% quarter over quarter (q\/q) in the last three months of 2025, missing the 0.8% estimate, which would\u2019ve been unchanged from the preceding three months. Private sector firms drove the decline as the group matched the headline, while state and local government continued to grow at the 0.8% clip. On a year- over-year (y\/y) basis, overall trends decelerated from 3.5% to 3.4% but accelerated from 0.5% to 0.7% when adjusting for inflation, or in real terms. <\/p>\n\n\n\n
Small business optimism sank for the first time since October last month as the economic outlook worsened for entrepreneurs. The headline number of 99.3 arrived below the 99.9 estimate and the 99.5 reported in December. Despite waning confidence about the cycle, partners anticipated revenues to grow, and that alongside easier projected credit conditions and capital expenditure intentions helped to cushion the drop. Other categories in the survey were relatively flat. Amongst the single most important problems cited by respondents, 18%, 16%, 13% and 12% said taxes, quality of labor, insurance cost\/availability and inflation.<\/p>\n\n\n\n
Private sector payrolls increased by an average of 6.5k workers in each of the four weeks during the period ended Jan. 24, according to ADP. It was the second consecutive week with an acceleration, picking up from the last two reported figures of 5k and 3.75k. The modestly stronger result is helping to offset some of the weakness seen in the other economic reports this morning.<\/p>\n\n\n\n
Despite recent labor market concerns, the bar is elevated heading into tomorrow morning\u2019s nonfarm payrolls print. The 70k job additions expected would be the strongest since September and the setup is conducive to a Wall Street rally on a slight miss at around 30k or 50k. A headline below forecasts but not weak enough to spark slowdown worries would lift rate cut probabilities while sustaining the belief that the cycle is on solid footing, supporting advances across fixed-income and equity assets. However, a number too hot would disrupt the rotation trades supported by the reacceleration theme lifting cyclical benchmarks, while a subdued figure is poised to raise angst as it relates to the economic outlook and the buoyancy of future corporate earnings as a result.<\/p>\n\n\n\n
Singapore\u2019s Ministry of Trade and Industry (MTI) reported yesterday that gross domestic product (GDP) expanded 5% and it upgraded both its fourth-quarter growth result and its outlook for the current year. In early January, the organization estimated that the economy expanded 5.7% q\/q on annualized basis during the final three months of 2025. The revised print now pegs the economy rate of expansion at 6.9%, substantially outpacing the economist consensus expectation for an unchanged result and accelerating from the third quarter\u2019s 4.6% expansion.<\/p>\n\n\n\n
Regarding the annual result, the pace decelerated from 5.3% in 2024. Last year\u2019s growth was driven primarily by manufacturing, wholesale trade, and the finance and insurance category. Within manufacturing, electronics were strong, largely due to increased demand from AI. <\/p>\n\n\n\n
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Looking ahead, the MTI anticipates 2026 GDP will expand 2% to 4%. In November, it estimated that growth would range from 1% to 3%. The MTI upgraded the outlook in response to a stronger-than-anticipated fourth quarter and global trade being less sensitive to US tariffs than originally feared.<\/p>\n\n\n\n
Retail sales in January accelerated from the 1% y\/y growth rate in December to 2.7% last month, according to the British Retail Consortium (BRC). In addition to exceeding the economist consensus estimate for a 1.3% gain, the result was also higher than the 12-month average growth of 2.3%. Food sales were 3.8% above the total value of transactions in the same year-ago period and matched the 12-month average for the category. The strength resulted, in large part, from new product launches focusing on health and well-being. The non-food category was up 1.7% compared to the 1.1% 12-month average. In this category, personal electronics, furniture, and children\u2019s clothes and toys experienced the largest acceleration in cash register activity. <\/p>\n\n\n\n
BRC Chief Executive Helen Dickinson attributes the strong January headline to consumers delaying purchases in December with hopes of finding post-holiday markdowns. Retailers, furthermore, held aggressive promotion events.<\/p>\n\n\n\n
Government approvals for new dwelling units sank 14.9% m\/m in December with permits for multifamily units proposed by private developers dropping 29%, according to the Australian Bureau of Statistics. While the 14.9% pace matched expectations, it was a large reversal from Novembers\u2019 13.1% growth. Permits for private houses, furthermore, were only 0.4% higher than in December 2024.<\/p>\n\n\n\n
The Australian business environment weakened slightly in January with the National Australia Bank (NAB) index falling from nine to seven. Yet business confidence edged up one point from two. Regarding conditions, sales descended six points to 10, aligning with the survey\u2019s long-term average. On an encouraging note, employment conditions were unchanged at five. Additionally, survey respondents noted easing cost pressures.<\/p>\n\n\n\n
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