There was little reaction to the headlines that manufacturing activity shrank in December by the most since 2024. The measure has been in “contraction territory” for 10 consecutive months.
The reason for the decline is that producers are drawing down their raw materials inventories at the fastest rate since October 2024 thus suggesting later strength to replenish depleted stocks.
Moreover, the report indicated that customer inventories shrank at the fastest pace since October 2022.
A major question at hand, at what price will these inventories be replaced? Companies front loaded purchases before the tariffs were implemented. If costs are now higher as generally expected, will companies now pass these increased costs over to the end user? Or will they continue to absorb costs to maintain or increase market share?
Led by the financials, energy and technology, equities rose. Gold also advanced. The capture of Maduro, which is dominating the headlines, was largely ignored by the markets.
As noted, this is a heavy data week. Moreover, corporate debt offerings to fund AI is “robust” this week. How will the markets respond?
Last night the foreign markets were up. London was up 0.71%, Paris down 0.42% and Frankfurt up 0.20%. China was up 1.50%, Japan up 1.32% and Hang Seng up 1.38%.
Futures are little changed. Bloomberg writes “the S & P 500 will climb as much as 20% this year, according to 60% of the 590 respondents to a c poll conducted in the last three weeks of December. Less than a third of participants expected losses for the index while only a 10th saw more than 20% gains.” How accurate is this outlook.
The 10-year is off 3/32 to yield 4.17%. as the yield curve between he 2-year and 30-year Treasury is continuing to steepen.
The 30-year Treasury increased in yield for the fifth consecutive year, rising about 6 bps while yields across the curve fell by at least 40 bps. This was only the second instance since the US began selling long dated bonds in the 1970s. The only other occurrence was in 2001 following the dotcom bust according to Bloomberg.
The accepted reasoning…lowering rates while inflation is still 50% above the speed limit, fiscal recklessness where the national debt is surging almost $2 trillion a year, and gargantuan demand for monies for AI expansion.
According to Bloomberg analytics, the generic 30-year benchmark has produced a negative 40% total return since its low yield of around 1.0% in 2020.
