Aurelia Butler

(Reuters) – A relatively benign U.S. reading on consumer price increases triggered a sharp relief rally in stocks and bonds on Wednesday, but traders and investors warn that markets are likely to remain anxious about the pace of inflation.The path ahead remains shadowed by ongoing uncertainty about the outlook for further Federal Reserve interest rate cuts and incoming president Donald Trump’s actions on issues like taxes and tariffs, market participants said.”The issues that have been driving rates higher and weighing on stocks are still out there,” said Art Hogan, market strategist at B. Riley Wealth. “We just don’t know whether we’ll see tariffs that are surgical or sweeping, what kind of policy moves we’ll see in other areas that could feed into inflation or growth.”While the consumer price index for December rose at a faster-than-expected pace, markets seized on the core CPI, which excludes the volatile food and energy components. Core CPI increased 0.2% in December after rising 0.3% for four straight months.Stocks surged following the CPI report with the benchmark S&P 500 jumping 1.8%.The benchmark 10-year Treasury reversed losses incurred in the wake of last Friday’s strong job creation report, pushing yields back down to 4.66%. Yields fall when bond prices rise.”This reading beat expectations modestly, but traders pounce aggressively on any whiff of good news,” said Steve Sosnick, market strategist at Interactive Brokers (NASDAQ:IBKR). “It’s a number and a reaction that we have to view positively, although quite possibly it’s magnified by the negativity we’ve been battling.”Yields had climbed sharply in recent weeks after the Fed in December tempered its outlook for rate cuts and projected firmer inflation in 2025 than it had previously.Before the CPI report, “there was some whispering that we might actually see a rate hike,” said Jeff Weniger, head of equity strategy at WisdomTree Inc., a New York asset management firm. But fears about the potential fallout that Trump’s policies could have on inflation remain a concern. Fed officials on Wednesday noted heightened uncertainty in the coming months as they await a first glimpse of the incoming administration’s policies, even as they said Wednesday’s data showed inflation was continuing to ease.Following the CPI report, Rick Rieder, BlackRock’s chief investment officer of global fixed income, said progress on inflation “may be slow and uneven, not least due to the great uncertainties that face the economy with fiscal policy changes coming over the next year.”For example, Rieder said in emailed comments, changes to the tariffs and trade regime “do hold the potential to increase core goods inflation for a time.”As the market remains data dependent, volatility could become more common. Kevin Flanagan, head of fixed income strategy at WisdomTree, expects that moves of 10 to 15 basis points daily for the 10-year Treasury could become the new norm.Following the data, traders of interest-rate futures still projected the Fed waiting until June to deliver its next rate cut. But now they are pricing about even odds the central bank will follow with a second rate cut by year’s end. Before the report, markets reflected bets on only a single cut in 2025. Tina Adatia, head of fixed income client portfolio management for Goldman Sachs Asset Management, said in a note to clients that the CPI data strengthens arguments for further cuts but “the Fed has scope to be patient.””More good inflation data will be required for the Fed to deliver further easing,” Adatia said. More

LOS ANGELES/BEIJING (Reuters) -U.S. imports from China finished the year strong after some companies stockpiled shipments of apparel, toys, furniture and electronics ahead of President-elect Donald Trump’s plan to impose new tariffs that could revive a trade war between the world’s economic superpowers.Trump, who has threatened to slap tariffs of 10% to 60% on goods from China, takes office on Jan. 20. During his first term, Trump mainly targeted Chinese parts and components. Economists and trade experts predict his next wave of tariffs could apply to finished goods. “There has thus been an uptick in the exports of final goods from China to the U.S., as importers aim to front-run possible tariffs on consumer items,” said Frederic Neumann, chief Asia economist at HSBC in Hong Kong.Chinese trade officials on Monday said December exports surged to record levels.The large rise was in part a reflection of concerns about escalating trade protectionism, Lv Daliang, spokesperson for the Chinese customs administration, said at a press conference in Beijing. U.S. seaports handled the equivalent of 451,000 40-foot containers of goods from China in December, a year-over-year increase of 14.5%, according to trade data supplier Descartes Systems Group (NASDAQ:DSGX). That capped a year when U.S. imports of bedding, plastic toys, machinery and other products from China rose 15% from 2023, according to Descartes. Helen of Troy Ltd (NASDAQ:HELE), seller of OXO kitchen gadgets, Hydro Flask water bottles and Vicks over-the-counter medicines, contributed to that increase. It has been building strategic inventories aimed at reducing exposure to tariffs, executives said on an earnings call last week. “The inauguration is literally days away. I think we’ll get some more clarity once President-elect Trump is in office,” Helen of Troy CEO Noel Geoffroy said of new U.S. tariff policies.Tool and electrical and plumbing supply distributor MSC Industrial (NYSE:MSM) Direct sources roughly 10% of its inventory from China. It is stocking up on its most popular products that could be at risk from new tariffs while developing promotional campaigns for goods made in the United States, executives told investors last week.Teasing out the true effect of the risk of Trump tariffs on overall import gains is difficult because companies closely guard trade data.RESILIENT DEMANDFurther complicating the analysis, resilient U.S. shoppers have been fueling demand. Some importers also brought in safety stocks to protect against disruptions from Houthi attacks on shipping near the Suez Canal trade shortcut and a labor dispute at seaports on the U.S. East Coast and Gulf of Mexico.Meanwhile, Trump also has threatened to tariff goods from many other countries, including North American neighbors Mexico and Canada.Walmart (NYSE:WMT), the biggest user of container shipping, is among the retailers that cargo data analysts say have ramped up imports in recent months. Walmart did not comment on that assessment.Several categories of U.S. imports from all geographic sources posted meaningful gains during the fourth quarter, according to S&P Global Market Intelligence.Textiles and apparel jumped 20.7%; leisure products, chiefly toys, gained 15.4%; home furnishings increased 13.4%; and household appliances and consumer electronics posted gains of 9.6% and 7.9%, respectively, according to S&P. Consumer staples categories such as household and personal care, as well as food and beverages, rose 14.2% and 12.5%, S&P said.Michael O’Shaughnessy, CEO of Element Electronics Corp., said there was a year-end rush to get goods into the United States. Element imports components, mainly from China, for its flat-screen TV assembly plant in Winnsboro, South Carolina – America’s last large-scale television production plant. It also imports finished televisions. The company built buffer stocks when dockworkers were threatening to shut the East Coast ports it uses.Still, O’Shaughnessy said there’s a limit to how much he’s willing or able to bring in.”There’s just no place to put everything,” he said. “Also, there are working capital constraints. Every day it sits there it costs you money.” More

(Reuters) -The U.S. economy ended 2024 with a slight to moderate increase in activity and a tick upward in employment, the Federal Reserve said on Wednesday, but businesses flagged a range of concerns about the potential for policies under President-elect Donald Trump to push prices higher. The findings, which draw on observations from the business and community contacts of each of the Fed’s 12 regional banks through Jan. 6, provide a snapshot of the economy before Trump returns to the White House next week. “More contacts were optimistic about the outlook for 2025 than were pessimistic about it, though contacts in several Districts expressed concerns that changes in immigration and tariff policy could negatively affect the economy,” the U.S. central bank said in its summary of surveys and interviews from across the country known collectively as the Beige Book.”Contacts expected prices to continue to rise in 2025, with some noting the potential for higher tariffs to contribute to price increases.”Concerns were evident even in regions where Trump performed strongly in his Nov. 5 election victory over Democrat Kamala Harris on a platform of hefty tariff increases and stiff restrictions on immigration.”Outlooks continued to improve although there was concern regarding potentially adverse effects of future immigration and trade policies,” the Dallas Fed said.”Food manufacturing and agricultural contacts in Kansas and Nebraska indicated restrictions on temporary migrant labor could lead to significant supply constraints,” the Kansas City Fed reported. “Similarly, leisure and hospitality contacts in Colorado suggested immigration restrictions could exacerbate labor shortages in towns near resort communities. Technology industry contacts expressed additional concerns surrounding the ability to employ overseas technology workers if offshoring policies were to shift.”Manufacturers in the Richmond Fed’s district were already factoring tariffs into higher inflation expectations, the survey showed. “Firms’ expectations for price growth a year from now increased,” the bank said. “Manufacturers expected prices to rise at a faster rate a year from now compared to nonmanufacturers, with several citing tariffs on inputs as a reason for higher expected price growth in the future.”The survey data was collected before the start of the California wildfires.Fed policymakers cut the policy rate by a full percentage point in the final four months of last year to a current range of 4.25%-4.50%. Most project a smaller reduction this year, given slowing progress toward the Fed’s 2% inflation goal in recent months and a strong labor market. Consumer prices rose 2.9% in the 12 months through December, data published on Wednesday showed, the largest rise since July and an acceleration from November’s 2.7% increase. December’s unemployment rate was 4.1%, lower than the prior month.Going forward, uncertainty around how Trump’s planned tariffs, tax cuts and other policies will affect the economy also has Fed policymakers in wait-and-see mode.Financial markets are betting on no policy rate reduction until June at the earliest. More

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