US: Trump Address To Joint Session Of Congress Underway Shortly

RBA-dated OIS pricing is flat to 4bps softer across meetings today. This follows weekend news confirming that tariffs will be imposed by the US at 25% on Canada and Mexico, and 10% on China, starting this week.

• Additionally, over the weekend, Canada and Mexico announced retaliatory tariffs on the US, while China stated it would implement countermeasures and file a complaint with the World Trade Organization.
• Today’s domestic data drop (retail sales, building approvals and job ads) has had little impact.
• OIS pricing is 4-10bps softer across meetings than last week’s pre-Q4 CPI levels, with August leading.
• A 25bp rate cut is more than fully priced for April (143%), with the probability of a February cut at 92% (based on an effective cash rate of 4.34%). 

Figure 1: RBA-Dated OIS – Today Vs. Pre-CPI

Source: MNI – Market News / Bloomberg

Retail sales were stronger than expected at the end of 2024. Q4 volumes rose 1.0% q/q to be +1.1% y/y after 0.5% & 0.2%. Monthly sales values have been impacted by a change in the timing of seasonal spending. Thus December fell 0.1% m/m after rising 0.7% in November, but it is now up 4.6% y/y after 3.1%, the highest growth rate in almost two years. Expectations for a February rate cut have grown but the retail data are signalling a recovery in spending supported by tax cuts and lower inflation.

• Q4 real retail sales rose at their fastest quarterly rate since Q1 2022 boosted by discounting. Consumers continue to be prepared to spend but only at the right price with retail prices rising 0.4% q/q down from Q3’s 0.6%. Retail volumes per person rose 0.5% q/q, the first rise in two and a half years.
• Q4 sales values rose 1.4% q/q to be up 3.7% y/y after 2.6% in Q3. 

Australia retail sales y/y%

• The drop in December sales was driven by sharp falls in clothing (-1.8% m/m), other retailing (-1.4% m/m ) and restaurants (-0.5% m/m). Household goods saw their fourth consecutive strong month rising 1.6% and spending is now 7.1% higher than a year ago. Food retailing rose 0.1% m/m, which was impacted by supply disruptions, and department stores 0.4%.
• Online sales rose 4.2% m/m to be up 12.7% y/y.
• The ABS noted that “Cyber Monday fell in early December” which lifted spending in the month, especially for household items.
• The monthly series will be replaced by household consumption this year. The December update is out on Tuesday and forecast to rise 0.4% m/m and 3.4% y/y.

ACGBs (YM +4.0 & XM +3.5) are richer and near session highs despite a beat by December Retail Sales.

• Retail sales fell 0.1% m/m (estimate -0.7%) in December, the first drop since March 2024, versus a revised +0.7% in November.
• Building approvals rose 0.7% m/m (estimate +1.0%) in December versus a revised -3.4% in November.
• ANZ job advertisements rose 0.2% m/m in January versus +0.3% in December.
• The strengthening observed during the session appears more closely linked to movements in U.S. Treasuries following the weekend’s US tariff announcements and the subsequent retaliatory measures by Canada and Mexico. China has also indicated it will implement countermeasures and file a complaint with the World Trade Organization.
• In today’s Asia-Pacific session, cash US tsys have twist-flattened, with yields ranging from 6bps higher to 1bp lower. This week’s focus will be on a heavy slate of corporate earnings, key CPI and PPI inflation data, and January’s headline employment report.
• Cash ACGBs are 4-5bps richer with the AU-US 10-year yield differential at -15bps.
• Swap rates are 4bps lower.
• The bills strip is richer, with pricing +2 to +6.