Last week, US equity sectors experienced volatility. Despite the postponement of tariff implementation on Canada and Mexico, the sharp rise in consumer inflation expectations ultimately led to a 0.24% decline in the S&P 500, which closed at 6,025.98.
In the bond market, a resilient labor market and rising inflation expectations pushed the 2-year U.S. Treasury yield up by 8.4 basis points to approximately 4.3%. However, the delay in tariff implementation caused the 10-year U.S. Treasury yield to decline by 5 basis points to around 4.5%, while the U.S. dollar index retreated further to approximately 108.3.
Key Economic Data Last Week
U.S. ISM Services PMI: The U.S. January Services PMI stood at 52.8 (prior: 54.0), marking seven consecutive months of expansion. Among its components, business activity and new orders declined to 54.5 (prior: 58.2) and 51.3 (prior: 54.4), respectively, likely due to the impact of severe winter weather.
The employment index rose slightly to 52.3 (prior: 51.4), reaching its highest level since September 2023. This aligns with the ADP private payroll data and the Bureau of Labor Statistics (BLS) nonfarm payroll report, indicating that the labor market in the services sector remains resilient. Meanwhile, supplier delivery times lengthened to 53.0 (prior: 52.5), reflecting further weather-related delays in deliveries.
In other sub-indices, the prices index declined to 60.4 (prior: 64.4) amid softer demand, slightly easing concerns about tariff-induced inflationary pressures in recent months.
Overall, the slight decline in the January Services PMI can be partially attributed to disruptions caused by winter weather. Although surveyed businesses expressed concerns about potential tariff policy changes, they reported no significant negative impact on operations thus far.
UK Interest Rate Decision: The Bank of England (BoE) voted 7-2 to cut rates by 25 basis points to 4.50%, with two members supporting a larger 50 basis-point cut. In its statement, the BoE noted that inflation has eased due to declining energy costs, while wage growth has lost some of its inflationary momentum, making a gradual and cautious rate-cutting approach appropriate moving forward.
In terms of economic forecasts, the BoE revised down its GDP growth projections for 2025-2027 to 0.75% (prior: 1.5%), 1.25% (prior: 1.5%), and 1.25% (prior: 1.5%), citing weaker-than-expected Q4 2024 growth, deteriorating business and consumer confidence, and slower productivity growth, which is expected to constrain short-term economic capacity.
On inflation, the BoE sharply revised up its 2025 inflation forecast to 3.5% (prior: 2.7%) due to diminishing deflationary effects from energy prices and the planned increase in the household energy price cap by the Office of Gas and Electricity Markets (Ofgem). However, as wage growth pressures and service price inflation are expected to gradually ease, the BoE projects inflation to moderate to 2.5% (prior: 2.25%) in 2026 and return to its 2.0% target (prior: 1.75%) in 2027.
U.S. January Employment Situation: Nonfarm payrolls declined to 143,000 (prior: 307,000) in January, impacted by wildfires and severe winter weather. From an industry perspective, the services sector continued to drive job growth, adding 111,000 jobs in January (prior: 275,000). However, the manufacturing sector remained weak, with employment levels largely unchanged over the past 12 months, reinforcing the trend of services sector dominance in job creation.
Additionally, the final benchmark revision of nonfarm payrolls showed that March 2024 employment was revised down by 598,000, indicating a continued gradual cooling in the labor market. However, compared to the preliminary revision in August 2023, which lowered payrolls by 818,000, this latest adjustment was less severe, suggesting that the labor market is moving further toward equilibrium.
In the household survey, the unemployment rate declined to 4.0% (prior: 4.1%), remaining at historically low levels. Meanwhile, the labor force participation rate edged up to 62.6% (prior: 62.5%), remaining stable. Overall, the data continues to indicate that the U.S. labor market remains resilient.
Key Economic Data This Week
US CPI（2/12）: Despite mounting concerns over inflation due to tariff policies, high base effects in Q1 and ongoing energy price pressures are expected to temper inflation. The Cleveland Fed projects January CPI YoY growth to slow to 2.85% (prior: 2.89%), while core CPI is expected to moderate to 3.13% (prior: 3.23%).
US Retail Sales（2/14）: Although the end of the holiday shopping season, overall consumer spending is expected to remain resilient. Retail sales are projected to remain flat at 0.0% MoM (prior: 0.4%), while the YoY increase is expected to reach 4.8% (prior: 3.9%).