Daily Commentary

MarketMinder’s View: This is awfully gloomy coverage of a flat monthly read in retail sales data, which cover a slice of US consumer activity. Yes, a flat month isn’t great, and it undershot expectations for 0.4% month-over-month growth. But it follows November’s 0.6% m/m and gains in five of the six months preceding December’s flatness, putting sales up 2.1% y/y. (Data from the St. Louis Fed.) This isn’t to say a positive year-over-year reading debunks worries over the lower-than-estimated read in December, but it does suggest the month’s reading doesn’t reflect the broader trend. That is vital perspective to keep considering the gloomy quotations in here about the flat month showing “‘Consumer spending has finally caught up with consumer sentiment, and not in a good way,’” based on sentiment’s dour levels over the past two years. The trend shows you that is very likely overwrought, especially considering consumer sentiment doesn't predict spending. (It would also be wise to wait for the personal consumption expenditures data to drop later in the month to even approach any real conclusion, considering that report is a) inflation-adjusted and b) contains much more data on services, the bulk of consumer spending.) The end of this piece paints a further dire picture by focusing on the bankruptcy of several retailers, like Saks and 1990s’ stalwart Eddie Bauer, as well as another firm slightly shifting its strategy in retail. It all paints a much darker picture than we think reality warrants at this point, illustrating a bullish gap between sentiment and the likely economic situation ahead.

MarketMinder’s View: The New York Fed’s quarterly report on household debt dynamics is out today, and predictably, headlines are hyping the rise in delinquencies to 4.8% of outstanding debt, the highest rate since 2017. But as with any time you see that type of comparison, it is worth recalling what was afoot in the economy. In 2017, you had growth with rising consumer spending, not a debt-driven calamity. Interestingly, Q4’s delinquency rise was mostly about late payments on mortgages and student debt, not credit cards and auto loans, which had garnered so much attention the past few quarters given rampant cost of living concerns. Those rising mortgage defaults were centered in low-income zip codes, per the NY Fed’s analysis, and we don’t discount the struggles those with lower or no incomes have experienced tied to he hot inflation from 2022 to roughly 2024. But it is worth noting that, as the coverage notes in passing, the current 4.8% delinquency rate is near pre-pandemic averages. Said differently, 95.2% of US household debt is current on its payments. The pre-pandemic average was 93.5% in data from Q1 2003 to Q1 2020. It ticked way higher, to 96.9%, from 2020 through 2024 before ticking down last year. Seen in this light, delinquencies look to be returning to normal after the pandemic.

MarketMinder’s View: The deal US President Donald Trump struck with European Commission President Ursula von der Leyen last summer still hasn’t technically passed the European Parliament, a point of frustration in Washington and for many in Brussels. But it took a step toward that outcome Tuesday, as centrist groups (the European Parliament is populated by lawmakers from national parties that form more or less ideologically aligned groups) reached agreement on the broad brush strokes. “The meeting broke a weeks-long deadlock over the removal of tariffs on U.S. industrial goods and lobster. It was resolved after the top trade lawmakers ironed out specific safeguards to address the risk that Trump turns hostile again after his threats last month to annex Greenland. Among difficult items, lawmakers agreed to a clause mandating the European Commission to review the deal six months after its entry into force if the U.S. has not lowered tariffs to a 15 percent baseline level on EU products containing steel, instead of the current 50 percent.” There are some other wrinkles, including a mandated review and renegotiation in 2028. But all in all, this is a notable step forward toward potential EU approval of the deal in the coming weeks.