Surprisingly Weak Retail Sales Data in December in the United States, US Treasury Bonds Continue to Rise, Expectations of Interest Rate Cuts Increase Again.

The unexpectedly weak US December retail sales data announced on Tuesday weakened market confidence in US economic growth, driving US Treasury prices to continue to rise and yields to further decline. The data showed that consumer spending momentum in the United States weakened significantly at the end of last year, prompting a reassessment of economic growth, inflation, and interest rate paths for this year. The data showed that retail sales in December were flat month-on-month, well below the market's previous expectation of a 0.4% growth, and significantly weaker than the 0.6% increase in November. This result indicates that US consumer spending significantly slowed down at the end of the year, intensifying concerns about a slowdown in economic growth. Analysts believe that this may mean that the path of interest rates and inflation for this year will be lower than previously expected. Jay Hatfield, CEO of Infrastructure Capital Advisors, said, "The previous concerns in the market about the economy overheating were completely wrong." Just in January, the US third-quarter GDP annualized growth rate was revised up to 4.4%, when the market widely believed that strong economic growth would increase inflation pressures, limit the Fed's room to cut interest rates, and thus raise US bond yields. However, the latest retail sales data changed this expectation. On Tuesday, US bonds rebounded across the board, with the 10-year US Treasury yield falling to 4.14%, down 5.3 basis points from the previous trading day, hitting a new four-week low; the yield had previously risen to 4.3%. The 30-year US Treasury yield fell 6.1 basis points to around 4.79% on that day, the lowest level since January 15. In the bond market, the yield trend is opposite to the price trend, with a decline in yield indicating an increase in bond prices. At the same time, bets in the interest rate futures market for rate cuts have noticeably increased. According to data from the CME Group's FedWatch tool, traders currently expect a 19.6% probability of a 25 basis point rate cut by the Fed next month, up from 17.2% the previous trading day. In addition, expectations for three to four rate cuts accumulated this year have also increased significantly, significantly higher than the policy signals released by Fed officials earlier. Gregory Daco, chief economist at EY-Parthenon, pointed out in a report, "The December retail sales report is pretty bad. While some high-income households still maintain strong spending power during the holiday season, most consumers are more cautious in spending and increasingly rely on credit cards and savings to sustain expenses." The impact of weak US economic data quickly spread to overseas markets. UK, France, and Germany government bonds strengthened simultaneously after the US retail sales data was announced. Hatfield pointed out that because the "US usually leads the global economy," the rise in European bond markets is to some extent also influenced by US data, and current indications show that global economic growth is slowing down, and interest rates are expected to decline. He further stated, "We believe that inflation may significantly decline in the first quarter, and the 10-year US Treasury yield may fall below 4%." Meanwhile, the GDPNow model of the Atlanta Fed, after the data was released, lowered its expected actual GDP growth rate for the US from 4.2% to 3.7%.