Data out of the US is still mostly weaker than expected, reinforcing the view that the economy is losing momentum as the impact of higher Fed interest rates slowly begins to be felt.

Characteristically, retail sales again fell faster than expected in December (-1.1% m/m), industrial production continued to decline for the third month in a row (-0.7% m/m), mainly due to significant contraction, the manufacturing sector and the number of building permits – an indicator of the prospects for construction activity – fell for the third month in a row (-1.6% m/m).

Weak data reinforced expectations of a Fed rate hike to 25 basis points. in the coming months, the possibility, estimated with a probability of more than 90%, for the next meeting on February 1. According to market estimates, the Fed’s current rate hike cycle is expected to end in June with a final rate of 4.90%, while an overall cut of about 50 basis points is expected in the last quarter of the year, which is different from estimates. The Fed will raise interest rates above 5.0% this year and cut them no earlier than 2024 amid fears that inflation will remain above the 2.0% target for longer than expected, mainly due to the high degree of narrowness that continues describe the labor market.

Raising expectations for a milder rise in US interest rates in the coming months coupled with the decision of the Bank of Japan (BoJ) not to continue, as many investors expected, further easing of government bond yield curve controls, significantly revitalizing fixed income markets.

In comparison, the largest weekly gain was recorded in US bonds, while the rise in European bonds appeared to be relatively limited, as they came under new pressure later in the week due to statements by the ECB president and the minutes of the last meeting on monetary policy came contrary to recent reports that the bank intends to slow down its pace of interest rate hikes in March.

* Department of Financial Analysis and Research of International Capital Markets of Eurobank.