From a downwardly revised 3.7% MoM drop in November, Housing Starts exploded 15.8% higher MoM in December while Building Permits (more forward looking) fell 0.7% MoM (a smaller decline than expected)…

Source: Bloomberg

That is the biggest MoM jump in Starts since March 2021, dragging the total Starts SAAR to its highest since Feb 2024…

Source: Bloomberg

The dramatic surge in starts was driven by a ridiculous 58.9% MoM jump in multi-family units (while multi-family permits fell 5.8%).

Source: Bloomberg

This is the biggest MoM jump in multi-family starts since 2016, and the highest SAAR for ‘renter nation’ since Dec 2023…

Source: Bloomberg

The question is – with sales expectatins falling, will homebuilders keep building at this pace…

Source: Bloomberg

Despite the robust monthly advance, new home construction for all of 2024 was the slowest since 2019.

With mortgage rates now back above 7.00%, perhaps the homebuilders are betting on a return of inflation and growth meaning home-buying affordability will remain out of reach for most Americans.

However, we do note that the more forward-looking ‘permits’ headline data actually declined MoM.

Furthermore, as builders respond to more tepid demand, the number of homes under construction has been trending down in the past year and eased to the lowest since August 2021. 

Completions also slowed further, hitting the slowest pace since March.

President Joe Biden said on Jan. 17 that he is commuting the sentences of nearly 2,500 individuals, marking the largest single-day act of clemency in modern history.

The latest pardons are being granted to people who were convicted of non-violent drug offenses and who are serving “disproportionately long” sentences compared to those they would receive today under current law, policy, and practice, Biden said in a statement published by the White House.

As Katabella Roberts reports for The Epoch Times, Biden pointed to two pieces of legislation: the Fair Sentencing Act of 2010, which reduced the disparity in sentences for crack cocaine and powder cocaine offenses from a weight ratio of 100 to 1 to 18 to 1, and the First Step Act of 2018, aimed at reducing the size of the federal prison population while promoting rehabilitation.

The previous weight ratio of 100 to 1 meant that 5 grams of crack cocaine, for example, was treated as equivalent to 500 grams of powder cocaine for sentencing purposes.

“Today’s clemency action provides relief for individuals who received lengthy sentences based on discredited distinctions between crack and powder cocaine, as well as outdated sentencing enhancements for drug crimes,” Biden said.

“As Congress recognized through the Fair Sentencing Act and the First Step Act, it is time that we equalize these sentencing disparities,” Biden said.

With this latest action, Biden has now issued more individual pardons and commutations than any president in U.S. history.

“This action is an important step toward righting historic wrongs, correcting sentencing disparities, and providing deserving individuals the opportunity to return to their families and communities after spending far too much time behind bars,” Biden said.

“I am proud of my record on clemency and will continue to review additional commutations and pardons.”

The White House did not immediately release the names of those receiving commutations.

Biden Pardons Hunter, Death Row Inmates

In December 2024, Biden said he was pardoning 39 people and commuting the sentences of nearly 1,500 others who had been convicted of nonviolent crimes such as drug offenses. The president said at the time that these commutation recipients were placed in home confinement during the COVID-19 pandemic and “have successfully reintegrated into their families and communities and have shown that they deserve a second chance.”

In a separate statement, the White House said many of those impacted by December’s pardons and commutation were parents, veterans, health care professionals, teachers, advocates, and engaged members of their communities who had “used their experiences in the criminal justice system to inspire and encourage others.”

Also in December, Biden announced he was commuting the sentences of 37 of the 40 individuals on death row, reclassifying their penalty to life in prison without the possibility of parole.

Biden has advocated for an end to the death penalty at the federal level in the United States except for limited cases of terrorism and hate-motivated mass murder.

When he first took office, he imposed a moratorium on federal executions while the Justice Department reviewed policies and procedures surrounding the practice.

He commuted 37 sentences, leaving three federal inmates facing execution: 2013 Boston Marathon bomber Dzhokhar Tsarnaev; Dylann Roof, who shot and killed nine people at a church in South Carolina in 2015; and Robert Bowers, who fatally shot 11 congregants at Pittsburgh’s Tree of Life Synagogue in 2018.

Earlier in December, Biden pardoned his son, Hunter Biden, who had been criminally convicted and was facing sentencing in two separate cases involving tax evasion and illegal possession of a firearm.

Biden is set to leave office on Jan. 20. His successor, President-elect Donald Trump, has vowed to expand executions for federal inmates in order to “protect American families and children from violent rapists, murderers, and monsters” and restore law and order.

China’s Q4 GDP and December industrial production reports beat market expectations meaningfully, with the 2024 full-year GDP growth target officially reached (what an amazing coincidence).

Real GDP growth rose notably to +5.4% yoy in Q4 from +4.6% yoy in Q3, driven by the acceleration of sequential growth on the back of more coordinated and forceful policy easing and export frontloading due to concerns about potential US tariff hikes.

“The biggest bright spot in the economy last year was exports, which was very strong especially if price factor was excluded,” Jacqueline Rong, chief China economist at BNP Paribas SA.

“That means the biggest problem this year will be US tariffs.”

Year-on-year industrial production growth rose meaningfully in December, led by faster output growth in the automobile and electric machinery industries.

Retail sales growth also accelerated, thanks mainly to the rebound in online goods sales growth as the distortions from an earlier-than-usual start of the Singles’ Day Shopping Festival last year subsided.

The ongoing consumer goods trade-in program continued to boost some durable goods sales, as evidenced by strong home appliance growth in December.

In comparison, fixed asset investment growth remained subdued despite strong local government bond net financing in recent months, as a large proportion of proceeds have been used for debt resolution, and it may take time for fiscal expansion and new project launches to follow suit.

Property-related activity continued to present wide divergence between sales and construction amid the ongoing efforts to support the housing market. 

Goldman Sachs continues to expect real GDP growth to slow to 4.5% yoy in 2025 from 5.0% in 2024, as the growth drag from likely higher US tariffs may more than offset the ongoing policy easing amid the prolonged property downturn and still-weak consumer sentiment.

“Better data has likely reduced Beijing’s sense of urgency and policy may continue to undershoot on the housing and social welfare front,” Morgan Stanley economists including Robin Xing wrote in a note.

However, amid all this glorious economic strength, Chinese bond yields are at record lows…

…does the bond market know something about the impact of Trump’s tariffs that Beijing would rather ignore for now?

“The recovery is tentatively sustained in a still fragile mode,” Societe Generale SA economists Wei Yao and Michelle Lam wrote in a note.

“Policymakers need to make a stronger fiscal boost in 2025 to ensure growth stability.”

The danger now is President Xi Jinping eases up on stimulus just as tariffs loom.

US equity futures are higher modestly, rebounding from yesterday’s just as modest loss. As of 8:00am, S&P futures rise 0.4%, with the underlying index poised for its biggest weekly gain since November’s election, while Nasdaq 100 futures advanced 0.5% thanks to Mag 7 stocks mostly higher (NVDA +1.3%, TSLA +0.9% and GOOG/L +0.6%) as the latest data and comments from Fed officials suggest the central bank will have room to cut interest rates this year. 10Y Treasury yields edged lower, slipping more than 15 basis points below recent multi-month highs, while the USD is higher. Base metals are mostly higher amid upside surprise on China Q4 and December macro data: Q4 GDP prints 5.4% vs. 5.0% survey vs. 4.6% prior; Retail Sales and IP both surprised to the upside. However, reactions from local Asian markets remain muted. Today, macro focus will be on housing data (Housing Starts and Building Permits).

In premarket trading, all members of the Magnificent Seven are higher: Alphabet (GOOGL) +0.4%, Amazon (AMZN) +0.5%, Apple (AAPL) +0.7%, Microsoft (MSFT) +0.3% , Meta Platforms (META) +0.3%, Nvidia (NVDA) +0.9%, and Tesla (TSLA) +0.7%. JetBlue and Southwest Airlines shares fall about 2% after BofA downgraded the carriers to underperform from neutral, citing their lower exposure to corporate, premium and international routes. Here are some other notable premarket movers:

• Bank OZK (OZK) ticks 1% higher after the bank posted 4Q net interest income that topped estimates.
• Fastenal (FAST) falls 6% after the construction supplies company reported 4Q sales that slightly missed as a “slow rate of growth reflects continuation of the soft manufacturing environment that has been sustained throughout 2024.”
• JB Hunt (JBHT) shares drop 9% after the transportation and logistics company reported fourth-quarter earnings per share that trailed consensus expectations.
• Lumentum (LITE) gains 6% after Barclays turned bullish on the photonics products maker, saying it’s an “underappreciated share gain story.”
• Truist Financial (TFC) gains 2% after Charlotte-based lender reported net interest income that was broadly in line with analyst estimates.

A big reason for this week’s stock market outperformance is that swap markets now expect some 40 basis points worth of rate cuts from the Fed this year, following a weaker than expected core CPI print, moving from not even pricing a single quarter-point move earlier this week.

“Even equity managers were more concerned over rates than earnings,” said Kevin Thozet, a member of the investment committee at Carmignac. “What we have had is reassuring data on this front — whether retail sales or inflation — hinting that the US economy may not be overheating. This has allowed for fixed income markets to take a bit of a breather.”

With Q4 earnings just starting, investor focus is also turning to President-elect Donald Trump’s inauguration on Monday and his plans for tariff hikes, tax cuts and mass deportation of undocumented migrants. “Key things to be aware of are whether Trump goes big from the very first day, coming up with executive orders and being very vocal,” Carmignac’s Thozet said. “He has been saying a multitude of things and we will see if he is more talking than acting.”

Europe’s Stoxx 600 index also gained, rising 0.6%, and on course for its strongest week since September. Basic resources shares led the way after Bloomberg reported that Glencore and Rio Tinto held early-stage talks about combining their businesses. The news, alongside a weaker pound, helped London’s FTSE 100 hit a record high. China-focused European sectors such as retail and auto also climbed after data suggested Beijing’s stimulus blitz is succeeding in shoring up economic growth. Here are some of the biggest movers on Friday:

• European miner stocks rise after Bloomberg reported that Rio Tinto and Glencore have recently held early-stage talks about a combination; Rio Tinto +1.3%, Glencore +2.3%
• SUSS MicroTec shares rise as much as 36%, the most on record, after the German semiconductor equipment manufacturer reported preliminary results that Stifel said topped expectations due to sales and Ebit beats
• Avolta shares rise as much as 9.6%, the steepest gain since July 2022, after the world’s largest duty-free operator announced a share buyback of as much as CHF200 million
• Smiths Group shares rise as much as 4.7%, briefly hitting a record high, after one of its shareholders called on the company to explore a breakup, arguing in a letter that a sale of the entire business or its units could improve its valuation
• Evoke shares jump as much as 12%, hitting their highest level since July, after the gambling company said its annual adjusted Ebitda will be the high end of its guidance range for 2024, prompting analysts to lift their earnings estimates
• Sanofi shares rise as much as 1.8% to the highest level since Oct. 29 after Berenberg analysts said the drugmaker’s valuation is “highly attractive.”
• Schroders shares rise as much as 1.8% after it said it plans to cut as much as 3% of its workforce
• Maire shares rise as much as 8.8% after Kepler Cheuvreux analyst Kevin Roger raised the recommendation on the Italian company to buy from hold, mentioning potential growth prospects
• Medcap shares fall as much as 30% after the Swedish life science investment firm’s preliminary 4Q figures showed “significantly lower earnings in business area Specialty Pharma” due to increased competition in the British market for melatonin
• Tenaris shares fall 0.5% before erasing the decline after Kepler Cheuvreux cuts to hold from buy, saying it sees limited upside for the Luxembourg-based oil-pipe maker

Earlier, Asian stocks snapped a three-day winning streak, led by losses in Japan after the yen strengthened on an outlook for higher interest rates while largely shrugging off news that China’s economy had expanded at its fastest pace in six quarters to hit the government’s growth goal last year. Analysts say the growth report for 2024 is overshadowed by looming US tariffs on Chinese exports. The MSCI Asia Pacific Index declined as much as 0.7% before erasing most of the loss. Korean companies Hyundai and Samsung were among the worst performers on the regional gauge. Shares in Hong Kong and mainland China advanced after data showed the world’s second-largest economy hit the government growth target last year. Market weakness is expected to continue into next week’s meeting as the BOJ maintains cautiousness, said Kieran Calder, head of Asia equity research at Union Bancaire Privee in Singapore. “If we get only talk and no rate hike from the BOJ, then expect a sharp reversal” toward a weaker yen. Despite Friday’s drop, the key Asian stock gauge is still on track to eke out its first weekly gain of the year.

In currency markets, Bloomberg’s dollar index rose 0.1%, as data continue to highlight the strength of the US economy relative to developed-market peers. The pound slipped as much as 0.6% to near the weakest level since November 2023, after a surprise drop in retail sales added to evidence of a struggling British economy. The yen briefly strengthened through 155 against the dollar early Friday as expectations ramp up for an interest rate hike by the BOJ; it has since retreated and was the weakest of the G-10 currencies, falling 0.4% against the dollar even as traders boost bets on the BOJ raising rates next week. Despite the drop, the Japanese currency is still up more than 1% versus the dollar for the week. Tightening in Japan comes amid uncertain prospects for cuts by the Federal Reserve amid recent US economic data.

In rates, treasury futures hold small gains as US session gets under way, with yields at or near weekly lows. Long-end tenors lead, richer by more than 3bp, flattening the curve. UK gilts pace gains for government bonds globally for a second straight day, with yields lower by 5bp-7bp, after weaker-than-expected UK retail sales figures boosted wagers on BOE easing. Fed’s self-imposed quiet period ahead of Jan. 29 rate decision begins Saturday. With US front-end yields little changed, 2s10s spread is nearly 3bp flatter on the day; US 10-year around 3bp richer at 4.59%, trails UK counterpart by 3bp in the sector while keeping pace with Germany’s. Bunds stayed higher as euro area CPI was confirmed at 2.4% year-on-year in December. IG credit new-issue slate is dormant after GSIBs dominated an eight-deal, $27.6b calendar Thursday, taking weekly supply to nearly $47b, beyond the $40b projected

In commodities, WTI rises 0.6% to $79.20 a barrel. Spot gold drops $10 to $2,705/oz. Bitcoin rises 2% above $102,000.

The US economic data calendar includes December housing starts/building permits (8:30am), December industrial production (9:15am) and November TIC flows 4pm. Fed speaker slate is blank

Market Snapshot

• S&P 500 futures up 0.4% to 5,997.00
• STOXX Europe 600 up 0.7% to 523.45
• MXAP down 0.1% to 178.81
• MXAPJ little changed at 564.48
• Nikkei down 0.3% to 38,451.46
• Topix down 0.3% to 2,679.42
• Hang Seng Index up 0.3% to 19,584.06
• Shanghai Composite up 0.2% to 3,241.82
• Sensex down 0.5% to 76,635.61
• Australia S&P/ASX 200 down 0.2% to 8,310.38
• Kospi down 0.2% to 2,523.55
• German 10Y yield down 2 bps at 2.53%
• Euro little changed at $1.0298
• Brent Futures little changed at $81.33/bbl
• Gold spot down 0.2% to $2,708.07
• US Dollar Index up 0.11% to 109.08

Top Overnight News

• Fed’s Hammack (2026 voter; dissenter) says Fed can be patient on rate cuts; inflation remains an issue; adds that monpol is only moderately restrictive: WSJ
• BofA weekly total card spending: -0.8% Y/Y, “LA wildfire impact seems to be more localised since total card spending in California has only slowed modestly so far”.
• US President Trump reportedly planning an aggressive immigration in the first hours of his administration: “The package of actions amounts to a dramatic shift in immigration policy that will affect immigrants already residing in the United States and migrants seeking asylum at the US-Mexico border.” – CNN
• China’s economic data comes in ahead of expectations, including Q4 GDP (+5.4% vs. the Street +5%), industrial production (+6.2% vs. the Street +5.4%), and retail sales (+3.7% vs. the Street +3.6%). RTRS
• A rally in Chinese government debt has sent yields to record lows and they may have further downside as the US trade tensions compound existing economic woes. That risks weighing even more on the yuan. BBG
• Swap market traders raised their bets to near certainty of a BOJ interest-rate hike next week, climbing from 71% on Wednesday. Almost three quarters of economists surveyed by Bloomberg also predict a hike. BBG
• Israel said it finalized an agreement with Hamas to pause the war in Gaza, suggesting a ceasefire is on track to begin on Sunday. The cabinet started a meeting to ratify the deal. BBG
• The Yemen-based Houthis signaled a pause in their attacks on commercial ships in the Red Sea following the Israel-Hamas ceasefire deal. BBG
• UK retail sales were quite soft in Dec, falling 0.6% M/M (vs. the Street consensus of +0.3%) while Nov was revised lower (from +0.3% to +0.1%). RTRS
• Trump has already prepared about 100 executive orders in a bid to take action quickly after his inauguration. The president-elect told Senate Republicans that he won’t wait on them to start implementing immigration and trade reforms. BBG
• President-elect Donald Trump is planning to release an executive order elevating crypto as a policy priority and giving industry insiders a voice within his administration. BBG
• Canada’s Central Bank will soon announce the end of its quantitative tightening program, deputy governor Toni Gravelle said on Thursday, making it one of the first central banks globally to stop unwinding pandemic-era asset purchases. RTRS

A more detailed look at global markets courtesy of Newsquawk

APAC stocks were mixed in mostly rangebound trade after the uninspiring handover from Wall St and despite encouraging Chinese GDP and activity data. ASX 200 traded indecisively as weakness in the top-weighted financials sector and telecoms clouded over the marginal gains in most sectors, while the index also failed to benefit from the mostly better-than-expected data in Australia’s largest trading partner. Nikkei 225 continued to underperform amid recent currency strength and the potential for a BoJ rate hike next week. Hang Seng and Shanghai Comp were choppy with only mild support seen after GDP, Industrial Production & Retail Sales beat expectations with China’s economy growing 5.4% Y/Y (exp. 5.0%) in Q4 and by 5.0% (exp. 4.9%) for 2024. Nonetheless, the data only briefly supported Chinese stocks which were ultimately rangebound after the mixed commentary from the stats bureau which noted the impact of external environment changes is deepening, domestic demand is not sufficient, and economic operations still face many difficulties and challenges but also stated that positive factors will outweigh negative factors for China’s economy in 2025. In addition, US-China trade frictions continued to linger after the USTR found China shipbuilding to be actionable under Section 301.

Top Asian News

• Majority of BoJ board members poised to approve a rate hike next week, according to Nikkei sources; some of the board hold cautious view; the final decision will come after Trump’s inauguration.
• China’s stats bureau said China’s economic operations were generally steady in 2024, but the impact from external environment changes is deepening and domestic demand is not sufficient, while it added that economic operations still face many difficulties and challenges. China stats bureau head said China’s economic achievements in 2024 were hard won but China policy stimulus was timely and boosted confidence and growth, as well as noted they will continue to promote economic recovery and implement more pro-active economic policies. The stats bureau head said positive factors will outweigh negative factors for China’s economy in 2025 and he is fully confident about China’s economic development in 2025, while he added that facing external changes, China will prioritise boosting domestic demand especially consumption.
• US Trade Representative said China’s dominance of maritime, logistics and shipbuilding sectors is actionable under Section 301 statute but did not make specific recommendations. USTR said China’s targeting of maritime sectors is enabled by forced labour, lack of labour rights, and excess capacity in steel and other areas, while it displaces foreign firms, lessens competition and creates dependence on China.
• China’s Commerce Ministry said China is strongly dissatisfied and firmly opposed to the US report about China’s shipbuilding and logistics sectors, while it will closely monitor US actions and take necessary measures to safeguard its legitimate rights and interests. MOFCOM also said the relevant investigation is marked by ‘unilateralism and protectionism’, while it added the ‘decline’ of the US shipbuilding industry has nothing to do with China and it urged the US to stop shifting problems in its domestic industrial development onto China.
• China’s Commerce Ministry requested the WTO to set up an expert group on Turkey’s restrictions on electric vehicles imported from China and said the next step will be to start a litigation process in accordance with WTO rules.
• BoJ is reportedly likely to hike in January barring any major Trump-driven market shocks, via Reuters citing sources; will make no major change to guidance that they will keep increasing rates. BoJ is unlikely to offer explicit guidance on the pace of future tightening or how far rates could eventually go, while source added “the market seems to have gotten the BoJ’s message”.

European bourses (Stoxx 600 +0.7%) opened modestly firmer across the board and have continued to climb since the cash open; as it stands, indices reside near best levels. European sectors hold a strong positive bias, with Autos & Parts leading the gains whilst Tech is the marginal laggard, as it trades on either side of the unchanged mark, paring the TSMC-induced upside seen in the prior day. US equity futures are modestly in positive territory, attempting to make up for the lacklustre performance in the prior session and garnering optimism via a strong European session thus far.

Top European News

• ECB’s Stournaras says easing should continue with a series of cuts, via Bloomberg.
• ECB’s Nagel says there is no doubt that the German economy is experiencing a pronounced growth weakness

FX

• DXY is marginally higher with the dollar gaining some strength at the hands of a softer GBP and JPY. DXY remains within yesterday’s 108.82-109.38 trading band. Docket ahead is light.
• EUR is flat vs. the USD in quiet EZ-specific newsflow other than comments from dovish GC member Stournaras noting that easing should continue with a series of cuts and news that French PM Bayrou survived a no-confidence motion against the government. EUR/USD is currently contained within yesterday’s 1.0259-1.0314. EZ HICP Finals saw modest downward revisions to some components, but had little impact on price action.
• JPY is softer vs. the USD after two hefty sessions of gains. Source reporting surrounding the BoJ continues to indicate that a 25bps hike is likely on the horizon. The Nikkei reports that a majority of BoJ board members are poised to approve a rate hike next week with the final decision set to come after Trump’s inauguration. USD/JPY just about briefly dipped below 155 with a 154.99 low.
• GBP is on the backfoot in what has been an indecisive week for Cable with the pair broadly pivoting around the 1.22 mark. Today’s selling pressure has been triggered by a soft outturn for UK retail sales which unexpectedly contracted on a M/M basis. Cable briefly broke below yesterday’s low at 1.2174 before trimming downside.
• Antipodeans are both slightly softer vs. the USD and unable to benefit from a better-than-expected outturn for Chinese GDP, retail sales and industrial production.

Fixed Income

• USTs are modestly firmer, but yet to deviate significantly from the unchanged mark. Derived a modest bid from action across the pond as Gilts lifted on the back of soft Retail Sales metrics for December. At a 108-22+ peak but with ranges narrow and the low at just 108-16+.
• JGBs are once again the modest underperformer on the account of more sources pointing to a BoJ hike in January.
• Bunds lifted off their 131.50 base (following UK Retail Sales) to a 131.88 session high over the course of the morning. EZ HICP (Finals) saw modest downward revisions; ahead, a few ECB speakers are due.
• Gilts gapped higher at the open by 27 ticks and then extended further to a 91.89 peak. A move which was driven by soft Retail Sales for December, metrics which complete the week’s set of dovish UK data and cement the view that February is a live meeting with a strengthening market bias towards a cut occurring. The 91.89 peak marks a WTD high and has Gilts on track to close the week out with gains of c. 250 ticks from the 89.00 open and 88.96 WTD low just below that.

Commodities

• A firm Friday session in the crude complex as risk appetite grinds higher in early European hours, with the crude benchmarks also supported by constructive Chinese GDP and activity data. WTI Feb resides in a current 78.65-79.44/bbl range and Brent Mar trades within 81.37-81.93/bbl.
• Subdued price action in the metal complex as the Dollar continues to grind higher, and with the Middle Eastern geopolitical landscape more constructive after yesterday’s blip surrounding last-minute tweaks to the Israel-Hamas deal. Spot gold resides in a USD 2,705.81-2,717.43/oz range.
• Mixed trade in the base metal complex despite the constructive Chinese data overnight and the risk appetite in the European morning. 3M LME copper ekes mild gains and resides in a current narrow USD 9,239.00-9,295.50.t range.
• Colonial Pipeline now estimates an earlier-than-expected restart of Line 1 on Friday after it made progress with on-site work to identify the source of a leak on Line 1 and began repairs.

Geopolitics: Middle East

• Hamas says issues regarding ceasefire deal resolved on Friday, according to a statement.
• “Israel’s security cabinet ratifies Gaza agreement”, according to Al Jazeera.
• Israel security cabinet begins meeting to vote on Gaza ceasefire, hostage release deal, according AFP.
• Israel agreed to the Gaza hostage deal and the cabinet is to meet on Friday, according to Israeli media.
• Reports suggest that the demand by Israel’s Finance Minister Smotrich were met, following him stating to PM Netanyahu that he would resign if not.

Geopolitics: Other

• French Defence Minister says French maritime patrol aircraft was the target of Russian intimidation measured in Baltics; France calls the measures unacceptable.
• Chinese hackers reportedly accessed Treasury Secretary Yellen’s computer in the US Treasury breach, according to Bloomberg.
• North Korean Foreign Ministry said it will exercise its thorough right to self-defence, according to KCNA.

US Event Calendar

• 08:30: Dec. Building Permits, est. 1.46m, prior 1.49m
  • Dec. Building Permits MoM, est. -2.2%, prior 5.2%
  • Dec. Housing Starts, est. 1.33m, prior 1.29m
  • Dec. Housing Starts MoM, est. 3.0%, prior -1.8%
• 09:15: Dec. Industrial Production MoM, est. 0.3%, prior -0.1%
  • Dec. Manufacturing (SIC) Production, est. 0.2%, prior 0.2%
• 09:15: Dec. Capacity Utilization, est. 77.0%, prior 76.8%
• 16:00: Nov. Total Net TIC Flows, prior $203.6b

DB’s Jim Reid concludes the overnight wrap

Markets put in a decent performance over the last 24 hours, with bonds and most equities posting a fresh advance, despite a slump for the Magnificent 7 (-1.92%) pushing down the S&P 500 (-0.21%). The big focus for investors was on Scott Bessent’s nomination hearing to become US Treasury Secretary, but the largest moves of the day were actually driven by comments from Fed Governor Waller. He sounded open to a rate cut as soon as March, and also said that 3 or 4 cuts were possible this year if the data cooperated. So those comments pushed back against the more hawkish narrative that developed because of strong data like the jobs report last week. And if we did end up with 3 or 4 cuts, that would be a faster pace than the Fed’s dot plot showed only last month, when the median dot pencilled in just 2 cuts this year.

After Waller’s comments, investors swiftly dialled up their expectations for Fed rate cuts this year. For instance, the likelihood of a cut by the May meeting moved up to 56%, and the total number of cuts by the December meeting moved up +3.3bps to 42.5bps. Those moves kept up the momentum from the CPI report on Wednesday, which helped to revive investors’ hopes that the Fed were still on a path to cut rates. So that meant it was a strong day for US Treasuries, with the 10yr yield (-4.0bps) down to 4.61%, whilst the 2yr yield (-3.5bps) fell to 4.23%.

In the meantime, when it came to Scott Bessent’s hearing to become US Treasury Secretary, the most notable comment was regarding new Russian sanctions, with Bessent saying he would support sanctions on Russian oil majors. But otherwise, his remarks were broadly in line with our understanding of existing policy. For example, Bessent called for an extension of tax cuts, saying that they would face “an economic calamity” if they didn’t renew them. Separately, he said that “we must ensure that the US dollar remains the world’s reserve currency”. And on fiscal policy, he said that the US “must work to get our fiscal house in order”. By the close, the dollar index had weakened -0.12%, but the main move lower came earlier in response to Waller’s comments, rather than anything Bessent said.

Ahead of all that, we had a reasonably positive set of US data yesterday. The strongest was the Philadelphia Fed’s manufacturing business outlook survey, which surged to 44.3 in January (vs. -5.0 expected). That’s the highest reading for the index since April 2021, as well as the biggest monthly jump in the index since June 2020. Otherwise, some of the hard data was more mixed, with retail sales ex autos up by +0.4% in December (vs. +0.5% expected), but the retail control group up by a stronger +0.7% (vs +0.4% expected). Meanwhile, initial jobless claims moved up to 217k in the week ending January 11 (vs. 210k expected). So with that pretty good set of data, the Atlanta Fed’s GDPNow estimate for Q4 ticked up to an annualised pace of +3.0%.

Despite the solid backdrop, the S&P 500 (-0.21%) declined for the first time this week, but this was primarily due to drag from the big tech firms as all of the Magnificent 7 (-1.92%) lost ground. By contrast, around three-quarters of the S&P 500’s constituents advanced on the day, led by rate-sensitive sectors. In fact, the equal-weighted S&P 500 was up +0.81% yesterday, bringing its gains for the week up to +3.42% so far. So even if the equal-weighted index is unchanged today, that would make it the second-best weekly performance in the last year, only behind the week of the US election in November.
Over in Europe, equities put in a much stronger performance, with the STOXX 600 (+0.98%) up to a one-month high, with France’s CAC 40 (+2.14%) posting the largest advance of the major indices amid strong gains for luxury stocks. That advance came just before French Prime Minister Bayrou survived a confidence vote in the National Assembly, thanks to abstentions from Marine Le Pen’s National Rally, as well as the Socialists. And in Germany, the DAX (+0.39%) hit an all-time high with just over 5 weeks until the federal election.

Meanwhile in the UK, gilts outperformed for a second day running after the latest growth data was weaker than expected. It showed the UK economy only grew by +0.1% in November, (vs. +0.2% expected), and if you look at the full three months to November, the economy was stagnant compared to the previous three months. So after the downside inflation surprise on Wednesday, that led investors to expect more rate cuts from the Bank of England this year, with 65bps now priced in by the December meeting. In turn, that led gilt yields to fall across the curve, with the 2yr yield down -8.1bps, and the 10yr yield own -5.1bps.

Elsewhere in Europe, yields on 10yr bunds (-1.5bps) and OATs (-1.8bps) posted a modest decline following the US rates move lower. We did get the account from the ECB’s December meeting as well, which confirmed the prevailing view that further cuts were still likely. And notably, there was some discussion of a larger 50bp cut, with the account saying that some members “would have favoured more consideration being given to the possibility of such a larger cut.” But ultimately, they only cut by 25bps, and the account said “it was remarked that a 50 basis point cut could be perceived as the ECB having a more negative view of the state of the economy than was actually the case.”

Overnight in Asia, the main story has been China’s GDP data, which showed the economy grew by +5.0% in 2024 as a whole. Moreover, the Q4 number was stronger than expected, with GDP up +5.4% on a year-on-year basis (vs. +5.0% expected). And some of the monthly data for December also surprised on the upside, with industrial production up +6.2% y/y (vs. +5.4% expected), whilst retail sales were up +3.7% y/y (vs. +3.6% expected).

Against that backdrop, Chinese equities have advanced this morning, with solid gains for the CSI 300 (+0.77%) and the Shanghai Comp (+0.55%). But elsewhere in Asia there’ve been losses this morning, with Japan’s Nikkei (-0.38%) and South Korea’s KOSPI (-0.28%) both losing ground. Looking forward however, US and European equity futures are all positive, with those on the S&P 500 (+0.22%) and the DAX (+0.15%) pointing higher.

To the day ahead now, and data releases from the US include industrial production, capacity utilisation, housing starts and building permits for December, and in the UK there’s also retail sales for December. From central banks, we’ll hear from the ECB’s Nagel, Escriva and Centeno.

The Supreme Court will likely announce opinions at 1000 ET on a law that comes just days before TikTok’s divest-or-ban deadline on Sunday, one day before President-elect Trump is sworn in. 

“The Court may announce opinions on the homepage beginning at 10 a.m.,” a notice on the court’s website read, without specifying what case or cases might be decided, adding, “The Court will not take the Bench.”

Here’s the Supreme Court’s agenda for Friday:

CBS News noted, “The Supreme Court seemed likely to upload the law when it heard arguments over TikTok’s legal challenge last week, with the justices seeming sympathetic to the government’s claims that China could use TikTok to collect a vast amount of data on its American users and spy on them.” 

TikTok’s parent company, ByteDance, faces a Sunday deadline to divest the social media platform or risk an outright ban in the US. Failure to comply could leave the app’s 170 million US users in the dark. 

Goldman told clients on Thursday that “Tiktok refugees” were finding alternative video-sharing platforms worldwide, such as downloading the Chinese app RedNote… 

TikTok’s divest-or-ban deadline comes one day before President-elect Donald Trump is sworn in. Trump once viewed that app as a national security risk and has since commented that he wants to “save” the Chinese app.

On Thursday, Trump’s incoming national security adviser Mike Waltz told Fox News’ “Fox & Friends”: “We will put measures in place to keep TikTok from going dark.” 

Lawmakers across the aisle are also pushing for a delay in the law’s implementation….

“It’s time to take a breath, try to step back, buy some time, try to figure this out rationally. But in no way should we have TikTok go dark,” Democratic Sen. Ed Markey of Massachusetts wrote in a Thursday letter to President Biden. 

Markey continued, “It would be catastrophic with just so many small businesses, so many creators, so many communities that have been created with no alternative available.”

Translation: Banning TikTok would be politically devastating for the party that enforces the ban—mostly because the younger generation, future voters, use the app religiously. 

There were reports from multiple MSM outlets saying that Biden won’t enforce the ban on TikTok after Sunday.  

Meanwhile, Republican Sen. Tom Cotton of Arkansas, chair of the Senate Intelligence Committee, said ByteDance has had more than enough time to find a buyer with the deadline fast approaching. 

“TikTok is a Chinese Communist spy app that addicts our kids, harvests their data, targets them with harmful and manipulative content, and spreads communist propaganda,” Cotton said.

“If the Supreme Court comes out with a ruling in favor of the law, President Trump has been very clear: Number one, TikTok is a great platform that many Americans use and has been great for his campaign and getting his message out. But number two, he’s going to protect their data,” Waltz said, adding, “He’s a deal maker. I don’t want to get ahead of our executive orders, but we’re going to create this space to put that deal in place.” 

On Tuesday, Bloomberg cited anonymous sources that said Elon Musk could purchase TikTok. However, a TikTok spokesperson called the report “pure fiction.” 

Via SchiffGold.com,

The 10-year treasury yield rocketed up to near 5%, and analysts say it’s because the economy is strong despite higher inflation.

But if the economy is so strong, why are Americans so indebted, cash-poor, and desperate?

10-Year Treasury Yields

Source

The recent spike in 10-year yields has been explained away by many as the result of a strong economy, but they fail to mention that high inflation makes the 10-year yield harder to contain. High 10-year yields support higher rates for things like car loans and mortgages, and with the world still under the inflationary spell of COVID-era QE and free money “stimulus,” the only answer may be—you guessed it—more free money QE to “stimulate” an economy that’s already stuck in an infinite loop of inflation. As Peter Schiff said recently:

“I think that they’ve already lost control of the long end of the bond market…the Fed is going to be pressured to try to lower long-term rates, and the only way it would be able to do that is by buying the long term bonds, and the only way to get the money to do that is to print it.”

But not even the Fed has a clue for how it would deal with a stagnation scenario.

“It was almost humorous and even it got a laugh out of Powell. A reporter asked him at the last press conference, ‘What’s your plan for stagflation?’ And he laughed and says, ‘Our plan for stagflation is that we’re not going to have it.’”

But we already do. For now. markets are also still trying to figure out how to react to Trump’s win, and uncertainty breeds volatility. So, high inflation coupled with uncertainty and “strong” economic data are the three factors being attributed to the spike in yields. The inflation part is partially right; the only problem is that it doesn’t go far enough, because inflation is actually much worse than what’s being reported. The other problem is that the “strong jobs data” being partially blamed for the rise in yields is never really as strong as what gets reported, as the jobs reports and other economic data are unreliable and designed to paint as rosy a picture as possible.

As Treasury yields keep rising, mortgage rates keep going up, and basic needs keep getting more expensive, 2025 is already shaping up to be a marvel of stagflationary chaos. As predicted, the bond market and broader economy are getting spooky, and Central Banks will keep buying gold to protect themselves from the same problems that government and central bank interventions create.

JUST IN 🚨: 30-Year Treasury Yield hits 5% for the first time since Halloween 2023 👻🎃 pic.twitter.com/2xs0htXcMU

— Barchart (@Barchart) January 10, 2025

The question is, how many Americans will protect themselves? The answer is very few, as the average American has hardly any money saved and is living paycheck-to-paycheck while becoming increasingly over-indebted. After all, when economies are extremely weak or extremely strong, they will always be what decides elections even if the root causes go far deeper than any one president, which they always do. 

But when Americans are struggling, seeing drastic price increases, and watching with enraged awe as their government continues donating taxpayer money to proxy wars in Ukraine and Israel as American cities flood, burn, and lose their critical infrastructure, they’re going to vote for the other candidate. So, while Trump signed the inflationary COVID stimulus checks, he was able to convince voters even after losing in 2020 that he should be given another chance after the economic deterioration of the last four years..

Whether or not Trumponomics itself ends up being inflationary, central bank monetary policy will always revert back to the only real tool in its toolbox, which is printing money. Whether or not DOGE, tariffs, and other promises materialize, the result of statist intervention to bring down prices is almost always, ironically enough, higher prices. Even if the intervention causes costs to go down in one place, they generally go up somewhere else. 

That’s because there are no free lunches in economics, no matter what central bankers may say.

Inflation may have come down from its post-pandemic highs, but Americans are still feeling the effects of the rapid price rise in the last three years.

And some places in the country are simply more expensive than others due to larger populations, more economic opportunities, desirable communities, and high taxes.

This chart ranks the 25 least affordable of America’s 50 largest cities by average monthly household spending on 10 common bills.

Data is sourced from payment platform Doxo’s annual report tracking household expenditure.

America’s Most Expensive Large City: San Jose

America’s least affordable large cities are clustered along the coasts.

California alone has five of them, led by San Jose, where households spend nearly $3,700 dollars a month.

Seattle ($3,049/month) and Portland ($2,758/month) also make the top 10, further representing the West Coast.

A brief glance at the map shows the other expensive cities are found along the Eastern Seaboard and—more surprisingly—down in the South. Southern states are generally known for lower costs of living.

The middle of the country is conspicuously unmarked except for Denver ($2,743/month) and Colorado Springs ($2,393/month).

But just dollars spent isn’t everything.

By looking at the share of monthly income put towards these bills, some cities on the coasts are more affordable than, say, Baltimore ($2,287/month) and Orlando ($2,251/month). Households there spend fewer dollars, but more as a proportion of their earned income.

So which cities spend the least on bills? Check out: America’s Most Affordable Cities Going Into 2025 for a breakdown.

Authored by Drieu Godefridi via The Gatestone Institute,

• What is important is the solidarity being forged between the major US social media platforms and the incoming US administration in support of real freedom of expression.

• The new US administration will not tolerate levying fines of tens of billions of dollars on major US technology companies by an EU that is drifting towards authoritarianism and is at the same time more dependent than ever on American power.

• It would be in Europe’s lasting interest to prepare for the return of free and unfettered expression.

Anyone wishing to gauge the extent of the European Union’s regulatory drift will need to read Articles 34 and 35 of the Digital Services Act (DSA).

Given their length it is impossible to quote them in full here, so here is an extract:

DSA Article 34, “Risk assessment”:

“1. Providers of very large online platforms and of very large online search engines shall diligently identify, analyse and assess any systemic risks in the Union stemming from the design or functioning of their service and its related systems, including algorithmic systems (…) and shall include the following systemic risks (…) (a) the dissemination of illegal content through their services (which includes ‘hate speech’); (b) any actual or foreseeable negative effects for the exercise of fundamental rights, in particular the fundamental rights (…) to non-discrimination; (c) any actual or foreseeable negative effects on civic discourse and electoral processes, and public security; (d) any actual or foreseeable negative effects in relation to (…) public health (…) and serious negative consequences to the person’s physical and mental well-being (…).”

Article 35, “Mitigation of risks,” obliges these platforms to take a whole arsenal of preventive and repressive measures, basically to prevent the sharing of information that displeases the European Commission.

In short, the idea is to force these platforms to pay hordes of patrol officers to relentlessly hunt down opinions that do not please the European Lord. The preventive nature of these measures means that they can be described as censorship in the strict sense. What’s more, general censorship, because the terms used by the European legislator – hate, non-discrimination, civic discourse, electoral process, public security, public health, well-being – are so vague that censors with (digital) scissors do cut wherever they please, at the whim of the European Prince.

Meanwhile, in the USA

Elon Musk has never made a secret of his adherence to the American concept of freedom of expression, which is that expression is free regardless of what the law says.

By contrast, according to the European Convention on Human Rights, expression is free with legal exceptions. For a long time, these exceptions were rare, with the result that expression remained almost as free in Europe as in the United States. Over the past 30 years, however these European exceptions to free expression have multiplied — hate, discrimination, racism, Islamophobia, transphobia, and so on — to the extent that European citizens – including those in the UK – are now being arrested, tried and imprisoned for expressing inappropriate ideas on Facebook, X/Twitter and other social media platforms.

But then, you might ask, why can’t the two concepts of expression — free in the USA, censored in Europe — coexist, each in its own way, on our respective continents?

The problem is that the European Union has an imperialist conception of its regulation. The EU does not regulate Europe; it seems to think it regulates the world. True to the rich German and French legal traditions, the EU sees itself as a kind of legislative model for the planet. Not only is the EU taking the initiative to regulate sectors that were not regulated before, it also seems to expect the rest of the world to follow suit.

Better — or worse, depending on your point of view — the EU is backing up its global regulations with sanctions no less global. Apple was recently hit with a landmark $2 billion EU antitrust fine. Breaches of the Digital Services Act (DSA) are punishable by penalties calculated as a percentage of revenues — not profits — received by the company concerned not just in Europe, but all over the world. In the case of companies such as Meta (Facebook) or X, we are talking about EU fines running into billions of dollars. Since they seem not to be able to innovate — anyhow, they haven’t — they tax Americans, who have.

All the “major platforms” that the European Union is regulating with imperial superciliousness are in fact American. Therefore, none of these platforms is subject to the august EU. As technology expert Jason Oxman remarks, “the EU [has] become as sterile in innovation as it is fertile in regulation.”

This puts the EU and its DSA on a collision course with the incoming Trump administration. With touching naivety, the German media on January 8, 2025, greedily called for DSA sanctions to be applied to X and to Meta (Facebook).

The major news on January 7 was the about-face, at least for now, of Meta’s Mark Zuckerberg, and his Facebook and Instagram, to the Muskian concept of free speech, pretty much as enshrined in the US Constitution. Whether or not this endorsement is self-serving is irrelevant. What is important is the solidarity being forged between the major US social media platforms and the incoming US administration in support of real freedom of expression.

Consequently, either American free speech will impose itself on Europe, or, less likely — unless the Europeans show a sudden desire for tyranny — Europe will impose its conception on American platforms. There can be no coexistence of the two concepts. If the EU had been legislating only for Europe and providing for local sanctions, the two concepts might have coexisted. The hubris of the EU’s grandiose vision of global sanctions makes this coexistence unlikely.

The European king has no clothes

A prediction: American free speech will win the day. Europe is weak, and the EU as a bureaucracy is increasingly hated by Europeans, not without reason. Without NATO, Europe would not exist militarily. With no American security guarantees, Europe can prepare for the return of Russian troops to Berlin. Above all, Europe exports more to the US than it imports. In 2022, trade in goods and services between the United States and the European Union totaled an estimated $1.3 trillion. US exports amounted to $592 billion and imports to $723.3 billion, as Trump reminds us of it at every one of his press conferences.

The new US administration will not tolerate levying fines of tens of billions of dollars on major US technology companies by an EU that is drifting towards authoritarianism and is at the same time more dependent than ever on American power. To imagine otherwise, you would have to be as naive as a German bureaucrat.

It would be in Europe’s lasting interest to prepare for the return of free and unfettered expression.

Prime Minister Keir Starmer was in Keiv on Thursday where he announced a “historic” 100-year partnership with Ukraine, committing the United Kingdom to supporting the country “beyond this terrible war” and into a future so that it can be “free and thriving again”.

He said while meeting with President Zelensky that “right now Putin shows no signs of wanting to stop” his “unrelenting aggression” and that the unprecedented agreement reflects the “huge affection between our two nations.”

Interestingly, an inbound Russian drone attack triggered anti-aircraft fire while Starmer and Zelensky were in the middle of talks, but no casualties or damage resulted.

The hugely symbolic 100-year agreement, which clearly sends a message to the Kremlin, commits a whopping £3 billion of British support each year, to be continued indefinitely, according to The Guardian. 

According to more of what’s been outlined as part of the long-term agreement:

Under the agreement, London and Kyiv pledged to “deepen defence cooperation” and boost Ukraine’s defence industry, recognizing it as a “future NATO ally”.

Starmer said his government would also deliver a “mobile air defence system” and bolster maritime cooperation through new security frameworks in the Baltic Sea, Black Sea and Sea of Azov.

Various treaties that are part of the 100-year agreement are expected to be introduced to the United Kingdom Parliament in the coming weeks.

Further, Starmer described that the British military will increase training for Ukrainian soldiers as well as send 150 artillery barrels made by Sheffield Forgemasters, part of rejuvenating the historic company’s national defense production.

Already there has long been a UK training program from Ukrainian troops on British soil, and London has from the start of the war been among the most hawkish European capitals supporting Kiev and leading anti-Russian measures.

Starmer further said that the 100-year partnership agreement will take relations to the next level. “The power of our long-term friendships cannot be underestimated,” he said.

War with Russia forever? the signing of an astounding century-long pact…

British Prime Minister Keir Starmer and Ukrainian President Volodymyr Zelenskyy have signed a historic ‘100 Year Partnership’ agreement in Kyiv. pic.twitter.com/4k6qxjhHcE

— Anonymous (@YourAnonCentral) January 16, 2025

“Supporting Ukraine to defend itself from Russia’s barbaric invasion and rebuild a prosperous, sovereign future is vital to this government’s foundation of security and our plan for change,” the prime minister added.

This appears to be a continuation of some European leaders’ policy of ‘Trump-proofing’ future support to Ukraine, amid fears that the US president-elect could press Kiev into a ‘bad deal’. But it will also serve to provoke antagonism between Russia and the West for a long time to come.

Authored by Steve Watson via Modernity.news,

A council in South London has instructed staff to stop using the term ‘Christian name’ and instead use ‘forename’, reasoning that it could offend some people.

Sutton council issued a 13 page ‘inclusive language guide’, which suggests staff ask people for “first name, forename or given name” rather than someone’s “Christian name”.

The guide also instructs staff that they should only refer to religion if it is “relevant to the information being communicated”.

Council staff branded ‘woke’ after being banned from asking people for their ‘Christian name’ https://t.co/Lsw8Nv5Gpb

— GB News (@GBNEWS) January 13, 2025

The guide states that use of “incorrect” or “outdated” language can “perpetuate, contribute to, or cause bias, prejudice and discrimination” in addition to “hurt and offence when discussing other personal attributes”.

It asks that gendered language be avoided, for example “workforce” should be used rather than “manpower” and “chair” should be used instead of “chairman”.

It also encourages workers to “actively avoid ageist terms such as ‘elderly’, ‘OAPs’, ‘pensioners’ or ‘youngsters’” and to steer clear of age-specific terms such as “mature workforce” or “young and vibrant team”.

Sutton council denied that it has banned the word ‘Christian’, issuing a statement saying “Our inclusive language guide has been created in collaboration with our staff to help them support our balanced and diverse community.”

Toby Young, the Free Speech Union founder, commented “This is woke hyper-sensitivity taken to ridiculous lengths.”

“I’ve never met a Jew, a ­Muslim or an atheist offended by the words ‘Christian name’,” Young added.

“Don’t you see that the whole aim of Newspeak is to narrow the range of thought? In the end we shall make thoughtcrime literally impossible, because there will be no words in which to express it.”

— George Orwell, 1984 pic.twitter.com/c36H7AJlaA

— Samantha Rose Hill (@Samantharhill) January 21, 2023

We’ve seen this kind of Orwellian erasure of language everywhere, from Universities and schools, to hospitals, workplaces, government bureaucracies, and even charities and churches.

*  *  *

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