Weak Inflation, Manufacturing Miss And Coronavirus Keeping A Lid On Rates

Pre-open stock indexes were down 150 on the DJIA at 8:00 am ET; 10 yr note -3 bps. The coronavirus is continuing to expand; confirmed cases in China rise to 9,809 from 7,700 a day earlier, and close to 100 cases are confirmed in other countries, from Japan to the United States. At least two-thirds of China’s economy to stay shut next week. The death toll now 213. The U.K. and Russia confirmed their first cases. China markets set to reopen on Monday.

At 8:30 am ET Dec personal income and spending; income +0.2% with forecasts of +0.3%, spending +0.3% as expected. It’s the PCE in the report that is key for inflation outlooks; PCE +0.3% in Dec as expected, yr/yr +1.6% on estimates of +1.7%. The core PCE +0.2% on estimates of +0.1%; yr/yr core +1.6% as expected. Also at 8:30 am ET Q4 employment cost index thought to be +0.7% was +0.7%; yr/yr +2.7% down frm +2.8% in Q3.

This is the key day in the impeachment trial. There is a broad expectation that the Senate won’t call witnesses as most Democrats are calling for, and by the end of the day or early tomorrow, the Senate will acquit. Here’s the schedule; it starts today with House prosecutors and President Trump’s defense, each delivering two hours of closing arguments. Then senators vote on calling witnesses. If the Senate rejects that option, the chamber will move toward a vote on final judgment on the two impeachment articles against PresidentTrump. There’s little chance that two-thirds of the Republican-controlled chamber would vote to convict and oust the president.

At 9:45 am ET January Chicago purchasing mgrs. index was thought to be 48.5 from 48.9 in Dec; the index reported at 42.9 a serious miss (under 50 is contractionary).

At 10:00 am ET, the final January U. of Michigan consumer sentiment index increased to 99.8 the best since last May, current conditions 114.4 down from 115.5 in December, expectations 90.5 up from 88.9 in Dec.

Japan’s Retail Sales missed expectations once again, decreased 2.6% yr/yr (expected -1.8%; last -2.1%), December Unemployment Rate remained at 2.2% (expected 2.3%), December Industrial Production increased 1.3% m/m (expected 0.7%; last -1.0%), and December Housing Starts fell 7.9% yr/yr (expected -11.5%; last -12.7%). January Tokyo CPI rose 0.6% yr/yr (last 0.9%) and Core CPI increased 0.7% yr/yr (expected 0.8%; last 0.8%). Germany’s December Retail Sales fell 3.3% m/m (expected -0.5%; last 1.6%) but were up 0.8% yr/yr (expected 5.0%; last 2.7%). China’s Manufacturing PMI remained near 50.0 in the January reading, which did not fully capture the impact of the coronavirus epidemic, while news from Europe showed weaker than expected Q4 GDP growth and a disappointing Retail Sales report from Germany.

Technicals look for 1.50% for the 10 yr before another resistance level is hit. MBS prices continue to lag treasuries.

Sources: TBWS