Retail softens as jobs loom

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Morning Bid U.S.

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What matters in U.S. and global markets today

By Mike Dolan, Editor-at-Large for Finance and Markets

Just as everyone was waiting nervously for the January payrolls report due later today, retail sales came in with a miss that scared the horses. The surprisingly flat retail readout from December sowed doubts about Main Street and consumption generally as traders braced for an employment report the White House has warned us not to "panic" about.

I'll get into that and more below.

But first, check out my latest column on how the dollar's drift is proving convenient for some - but could have a sting in its tail.

And listen to the latest episode of the Morning Bid daily podcast. Subscribe to hear Reuters journalists discuss the biggest news in markets and finance seven days a week.

Data refreshes every time you open this email. For more U.S. market news, click here. Please send any feedback to morningbid@thomsonreuters.com.

Today's Market Minute

Shares of US brokerages fell on Tuesday after wealth management startup Altruist introduced AI-enabled tax planning features, as the still-nascent technology continues to fuel disruption fears.
China's ByteDance is developing an AI chip and is in talks with Samsung Electronics to manufacture it, as the TikTok parent seeks to secure supply of advanced processors.
U.S. President Donald Trump on Tuesday said he was considering sending a second aircraft carrier to the Middle East, even as Washington and Tehran prepare to resume negotiations.
The fiscal picture across developed economies is deteriorating, pointing to an ugly few years for bond markets, writes ROI Markets Columnist Jamie McGeever.
Friend-shoring is back as the US seeks to build a metallic alliance - "Project Vault" - to loosen China's critical minerals chokehold, writes ROI Metals Columnist Andy Home.

Retail softens as jobs loom

Investors are a bit anxious that the consensus forecast for an increase of 70,000 jobs in January may be overoptimistic, considering the weak jobs readings last week. And there's trepidation about annual benchmark payrolls revisions to boot, which could downgrade the last twelve months' job growth by a forecast 750,000-900,000 positions.

Fed futures pricing responded sharply to the negative retail surprise, now showing an almost 50% chance of another Fed cut as soon as April, Jerome Powell's last meeting as Chair. A cut by June, when Kevin Warsh is due to take the helm, is now fully priced. Some 60 basis points of easing is priced for the full year.

That might please President Trump - but only a bit. He said on Tuesday that the U.S. should have the lowest interest rates in the world. Taken at face value, that would mean negative interest rates, which he probably isn't aiming for, though it's safe to assume he meant a lot lower than where a 60 bps cut would leave us.

This fresh dovish take on the Fed outlook contrasts with the views of two hawks on the policymaking council. Cleveland Fed boss Beth Hammack and Dallas Fed's Lorie Logan said on Tuesday they don't see rates going anywhere any time soon. For more on that tilt, we probably have to wait for the CPI inflation report this Friday.

The broader market take on the unfolding picture was to push Treasury yields lower across the curve during another big debt auction week. The dollar continued to tumble on Wednesday, especially against the resurgent yen.

The S&P 500 ended in the red yesterday on the retail flub and futures were subdued ahead of today's bell amid the ongoing tech and AI disruption.

On the AI front, there was more good news from global chip giant TSMC as it reported January revenues up almost 40% year-on-year, as well as further capex plans. Elsewhere, TikTok owner ByteDance is reportedly developing a new AI chip with South Korea's Samsung.

But another wave of AI negativity also struck yesterday - and so soon after last week's Anthropic-linked plunge in software and data analytics stocks. Wealth management startup Altruist launched an AI-enabled tax planning tool that on Tuesday whacked the shares of more established wealth managers such as Charles Schwab, with the ripple effect felt in European financial services stocks on Wednesday.

The market is becoming vicious when trying to sort out the winners and losers from the AI revolution.

Euro and yuan global ambitions hasten the dollar drop

The dollar is sliding again against the euro and yuan, just as European and Chinese leaders are seeking to boost the global role of their currencies, taking advantage of the rising dollar doubts. The latest exchange rate shifts seem to be playing out as desired for all parties, especially Washington.

With the Lunar New Year holidays looming, China's offshore yuan has surged to its best levels against the dollar in almost three years. The greenback has lost 6% against the renminbi since the start of last year.

The euro's 15% surge against the dollar over the same period is even more pronounced, as the exchange rate stalks the five-year high above $1.20 set last month.

These moves are in line with the recent jawboning by leaders in both areas.

Graphics are produced by Reuters.

Read the full column

Today's key chart

Graphics are produced by Reuters.

More than 90% of economists polled by Reuters this month think Fed Chair nominee Kevin Warsh is more likely to set policy too loose rather than too tight.

Today's events to watch

U.S. January employment report (8:30 AM EST)
U.S. 10-year note auction
Fed's Michelle Bowman, Kansas Fed's Jeffrey Schmid, and Cleveland Fed's Beth Hammack all speak
U.S. corporate earnings: Cisco Systems, Equinix, Hilton Worldwide, Kraft Heinz, McDonald's, T-Mobile US

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