U.S. core inflation came in lower than expected last week, easing concerns about a resurgence in inflation and increasing expectations for rate cuts. Optimism lifted all sectors of U.S. equities, with the S&P 500 Index rising 2.91% to close at 5,996.65. In the bond market, the prospect of looser monetary policy drove the 10-year Treasury yield down by 16 basis points to around 4.6%, while the U.S. Dollar Index fluctuated and edged down to approximately 109.4.
Key Economic Data from Last Week
U.S. December CPI: The U.S. Consumer Price Index (CPI) rose 2.9% year-over-year in December (previous: 2.7%) and 0.4% month-over-month (previous: 0.3%), according to market expectations. Core CPI increased by 3.2% year-over-year (previous: 3.3%) and 0.2% month-over-month (previous: 0.3%), both below market forecasts.
The rise in CPI was primarily driven by a significant increase in energy prices, which surged 2.6% month-over-month (previous: 0.2%), contributing to over 40% of the monthly CPI increase. However, the lack of sustained growth in core goods prices from the previous month offset part of the inflationary impact.
Core services prices remained stable at 0.2% month-over-month, with housing-related categories, including rent and owners’ equivalent rent, slightly increasing to 0.3% (previous: 0.2%). On a year-over-year basis, housing-related inflation continued its gradual decline, with rent and owners’ equivalent rent easing to 4.3% (previous: 4.4%) and 4.8% (previous: 4.9%), respectively. This reflects the ongoing softening in new lease agreements, and overall inflation is expected to moderate further as housing costs decline, albeit at a slow pace.
U.S. December Retail Sales: Retail sales grew 3.8% year-over-year (previous: 4.1%) and 0.4% month-over-month (previous: 0.8%) in December, slightly below the market expectation of 0.6%.
Among key categories, automotive sales grew strongly by 8.4% year-over-year (previous: 7.4%) and furniture/home goods sales surged by 8.4% (previous: 2.8%). These gains were partially offset by declining sales in building materials, which fell by -1.8% year-over-year (previous: 2.1%).
Excluding autos and gasoline, core retail sales grew 3.3% year-over-year (previous: 4.1%) and 0.3% month-over-month (previous: 0.2%). Further excluding food services and building materials, control group retail sales increased 4.1% year-over-year (previous: 4.6%) and 0.7% month-over-month (previous: 0.4%), indicating that overall consumer spending remains resilient.
China December Economic Data: Industrial production grew significantly by 6.2% year-over-year (previous: 5.4%), supported by industrial equipment upgrades and policies incentivizing the replacement of consumer goods. Retail sales grew 3.7% year-over-year (previous: 3.0%), driven by strong demand for household appliances under replacement subsidy programs.
Fixed asset investment weakened slightly to 3.2% year-over-year (previous: 3.3%) amid continued weak local government finances. Fourth-quarter GDP grew 5.4% year-over-year (previous: 4.6%) due to robust production and accelerated exports, bringing full-year 2024 GDP growth to 5.0% (2023: 5.2%).
Key Economic Data from Last Week
Japan CPI (1/24)：With energy subsidies being phased out since November, inflationary pressures in Japan are rising. Market expectations for core CPI (excluding food) indicate a year-over-year increase of 3.0% (previous: 2.7%).
Japan Rate Decision (1/24): The Bank of Japan (BoJ) maintained its policy rate at 0.25% during its December meeting. BoJ Governor Kazuo Ueda indicated that further rate hikes would depend on more data on domestic wage growth and the economic policies of the incoming U.S. President, Donald Trump.
However, Ueda has reiterated that rate hikes will continue if economic and inflationary trends meet expectations. The BoJ’s latest quarterly report noted that an increasing number of companies now consider wage hikes a standard practice. Markets anticipate that if Trump refrains from introducing policies with significant economic impacts, the BoJ is likely to raise rates again in January.