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U.S. retail sales in November increased just 0.3%, much less than expected, likely payback after surging in October as Americans started their holiday shopping early to avoid shortages and paying more for goods. Analysts expected +0.8% month on month. Core retail sales also missed (ex-autos and ex-autos-and-gas). Total airlines spending slipped noticeably to -15% on a 2 year basis, down 13% from the prior week. The print comes as even more negative when factoring inflation, as retail sales are reported on a nominal basis and thus 'adjusted for inflation' retail sales most likely dropped significantly in November.  

Bloomberg survey of 106 asset managers finds Fed policy mistake seen as biggest risk facing stocks. Persistent high inflation and threats of new variants come close after. Investors will be watching the Fed and inflation numbers closely. In the meantime, momentum for stocks is challenged, besides the defensive sectors which have done well recently. 

USD bulls are in an optimistic mood ahead of this week's key Federal Reserve meeting, with the USD index close to pushing higher. If expectations of a Fed faster to taper come good, that could stir up new bullish bets. The USD and the markets in general are in search of a catalyst to dive in either direction, with a high sensitivity to the message the Fed will communicate. High volatility has continued for risky assets as traders reduced their risk ahead of the key Fed meeting. A mix of Omicron news and year-end profit taking, most likely also played against risky assets. 

U.S. 2 year Treasury yields dropped to 0.69%, following U.S. inflation data for November meeting close to expectations at +0.8% versus 0.7% expected. (ex food & energy +0.5%, meeting consensus Similarly, amount of 2022 Fed hiking priced in by swaps slipped after inflation data. This key inflation data comes as a relief after a lot of stress in risky assets particularly sensitive to inflation and to a faster tightening by the US Federal Reserve. Nasdaq-100 is soaring +0.9% pre-market. 

The economic recovery has led to investors now pricing in the first Fed rate hike in the second quarter of 2022 and 3 hikes by the end of 2022. 1, 2, and 3 year Treasury yields have risen to their highest levels since the start of the pandemic. Financials with large cash deposits should be the main beneficiaries of rising Treasury yields. Chart by Charlie Bilello.