Unadorned Notes: January 15-17, 2025
Retail Sales Strengthen U.S. Economy; IMF Raises U.S. Growth Forecast; Major Banks Post Strong Earnings; Supreme Court Upholds TikTok Ban; Israel, Hamas Agree to Ceasefire
Economics, Finance, and Business
CPI Signals Inflation Cooling: The December 2024 Consumer Price Index (CPI) showed signs of easing inflation, with headline CPI rising 2.9% YoY and 0.4% MoM, driven primarily by higher energy prices. Core CPI, which excludes food and energy, rose 3.2% YoY, slightly down from November’s 3.3%, and increased 0.2% MoM after four consecutive months of 0.3% gains. Shelter inflation, making up 40% of core CPI, continued to decelerate, while healthcare services and core goods also showed slower price growth. Energy prices rose 2.6% MoM, driven by a 4.4% surge in gasoline, while food inflation moderated to 0.3% MoM. The report reinforces expectations for a disinflationary trend, with traders anticipating Federal Reserve rate cuts in 2025.1
Jobless Claims Rise Slightly: U.S. weekly jobless claims rose by 14,000 to a seasonally adjusted 217,000 for the week ending January 11, 2025, exceeding economists’ expectations of 210,000. Despite the increase, claims remain consistent with a strong labor market, supported by December’s 256,000 nonfarm payroll gain and a drop in the unemployment rate to 4.1%. The Federal Reserve’s Beige Book reported modest employment growth and ongoing challenges in finding skilled workers, while layoffs remained rare. With inflation still elevated and labor market resilience intact, the Fed is expected to maintain rates at its January 2025 meeting, projecting two rate cuts in 2025. Continuing claims, a measure of sustained unemployment, declined by 18,000 to 1.859 million for the week ending January 4, 2025.2
Housing Starts Hit 10-Month High: U.S. single-family housing starts rose 3.3% in December 2024 to a seasonally adjusted annual rate of 1.050 million units, the highest level since February 2024, while total housing starts jumped 15.8% to 1.499 million units. Permits for future single-family construction increased 1.6% to 992,000 units, though higher mortgage rates and elevated home inventories continue to weigh on the housing market. Multi-family housing starts surged 58.9%, but overall building permits declined 0.7% in December and 3.1% year-over-year. Rising borrowing costs, tied to the Federal Reserve’s rate hikes, have softened demand, pushing unsold inventory to 2007 levels. Economists warn Trump’s proposed tariffs and immigration policies could disrupt labor and materials, constraining construction activity in 2025.3
Retail Sales Strengthen U.S. Economy: U.S. retail sales rose 0.4% in December 2024, following a 0.8% gain in November 2024, with annual growth at 3.9%, driven by strong auto and core retail sales. Core retail sales, excluding volatile components, surged 0.7%, signaling robust consumer spending and supporting GDP growth estimates of 2.9% for the fourth quarter. Despite higher prices and concerns over tariffs, strong wage growth and labor market resilience sustained demand, while unemployment claims remained low at 217,000. The Federal Reserve is expected to have two rate cuts in 2025, though risks from tariffs and immigration policies persist. Analysts warn higher inflation from tariffs may disproportionately affect low-income households already facing financial strains.4
U.S. Achieves Strong Post-COVID Recovery: The U.S. economy has demonstrated exceptional recovery post-pandemic, with real GDP exceeding pre-pandemic growth trends and surpassing other G7 economies. Unemployment returned to pre-pandemic levels within two years, while real median household wealth rose 37% from 2019 to 2022. Business investment surged, adding an estimated $625 billion above historical patterns, alongside a boom in entrepreneurship and high-tech manufacturing. Inflation, which peaked during supply chain disruptions, has cooled significantly, nearing the Federal Reserve’s 2% target. Policymakers credit targeted fiscal measures, infrastructure investments, and supply-side policies for fostering economic resilience and long-term growth.5
IMF Raises U.S. Growth Forecast: The IMF revised its U.S. GDP growth projection for 2025 to 2.7%, citing a robust labor market and rising investment, in contrast to weaker growth in the euro area and China. Global output is expected to grow 3.3% in both 2025 and 2026, though elevated policy uncertainty poses risks. The IMF warned that proposed U.S. policies, including tax cuts, deregulation, tariffs, and immigration curbs, could fuel inflation and create economic volatility. While deregulation and fiscal stimulus may boost short-term growth, excessive measures could lead to unsustainable boom-bust cycles. Globally, inflation is projected to decline to 4.2% in 2025 as pandemic-era disruptions continue to fade.6
U.S. Equity Funds See Outflows: U.S. equity funds saw $8.23 billion in outflows for the week ending January 15, 2025, following $5.01 billion in the prior week, as investor sentiment dimmed over reduced expectations for Federal Reserve rate cuts. Large-cap, mid-cap, multi-cap, and small-cap funds experienced significant divestments, while financial sector funds attracted $752 million in net inflows. Bond funds drew $6.18 billion in net inflows, led by general domestic taxable fixed income, government, and loan participation funds. Money market funds, however, posted $60.07 billion in outflows, breaking a three-week streak of net purchases. Investor caution was heightened by earnings season uncertainties and concerns over inflationary risks tied to potential trade policies.7
Major Banks Post Strong Earnings: Major U.S. banks reported strong fourth-quarter earnings, driven by gains in investment banking, trading, and wealth management. Goldman Sachs’ 2024 profit surged 68% to $14.28 billion, while JPMorgan posted a record $58.5 billion, up 50% year-over-year. Morgan Stanley exceeded expectations with a 26% rise in quarterly revenue, supported by growth across its core divisions. Bank of America and Citigroup also delivered solid results, citing growth in wealth management and asset management fees. Despite inflationary concerns and regulatory uncertainties, analysts note the financial sector remains supported by economic resilience and potential pro-business policies.8
Richemont Boosts Luxury Sector Rally: Richemont reported €6.2 billion in fiscal Q3 2025 revenue, up 10% year-on-year, driven by strong festival sales in Europe, the Americas, and the Middle East, despite a 7% drop in Asia-Pacific revenue. Richemont’s stock surged 16% to a record ₣161.8, lifting European luxury stocks, including LVMH and Kering, as the Euro Stoxx 600 Luxury Index rose 7%. Analysts remain divided on whether weak Chinese demand is cyclical or a longer-term issue, with the Asia-Pacific region accounting for 30% of luxury sales. The luxury sector shows recovery signs, as a Goldman Sachs luxury basket rose 13% since November 2024, with key earnings reports still to come.9
U.S. Politics, Policies, and Geopolitics
Trump Eyes DFC Sovereign Fund: President-elect Donald Trump’s team is exploring plans to restructure the U.S. International Development Finance Corp (DFC) to operate more like a sovereign wealth fund and strengthen U.S. economic influence globally. The proposed changes aim to deploy investments strategically in regions like Panama and Greenland. Trump previously outlined the concept of a sovereign fund for national infrastructure projects in a 2024 speech, suggesting tariffs as a funding source. Billionaires Elon Musk and Stephen Feinberg are reportedly involved in discussions, while candidates for the DFC’s leadership have been interviewed at Trump’s Palm Beach estate.10
Trump, Xi Discuss Issues Before Inauguration: President-elect Donald Trump spoke with Chinese leader Xi Jinping ahead of his January 20, 2025, inauguration, addressing trade, fentanyl, TikTok, and global conflicts. The call occurred shortly before the U.S. Supreme Court upheld a law effectively banning TikTok. Trump described the conversation as positive, expressing optimism for solving bilateral and global challenges. Chinese Vice President Han Zheng will attend Trump’s inauguration as Xi’s representative, signaling hopes for improved relations. Both leaders emphasized the importance of managing differences and fostering peaceful cooperation.11
Supreme Court Upholds TikTok Ban: The U.S. Supreme Court unanimously upheld a law requiring ByteDance to divest from TikTok or face a ban, citing national security concerns over data collection and ties to China. The Biden administration, while ostensibly supporting the law, deferred enforcement to President-elect Donald Trump, as the ban is set to take effect the day before his inauguration. TikTok argued the law violates First Amendment rights and indicated the platform would shut down if banned, while efforts to delay the deadline by lawmakers and the White House failed. Trump expressed intent to negotiate a solution, and the app’s CEO Shou Zi Chew is expected to attend his inauguration.1213
QZ’s Comment: The political maneuvering and passing the buck reflects poorly on the U.S. government’s handling of the issue. They should have banned TikTok in 2017/2018, before its M&A with Musical.ly, when most NatSec experts had already formed a consensus that it could be a big red flag, given the PRC’s passage of its National Intelligence Law (国家情报法) that year. Instead, they waited until TikTok’s user base exceeded 50% of the U.S. population—at which point politics inevitably came into play (this is a capitalist democracy, after all). What is curious, though, is why Europe did so little, given its obsession with the “precautionary principle”. TikTok reportedly has over 100 million users there as well.
Xi Calls for Stronger EU Ties: Chinese leader Xi Jinping emphasized the importance of a “symbiotic” economic relationship with the European Union during a call with European Council President Antonio Costa. Xi’s comments come amid rising U.S.-China trade tensions, including impending tariff hikes and export restrictions on AI technologies under the Biden Administration. Costa called for balanced trade relations and urged China to support a just resolution to the war in Ukraine. Meanwhile, the EU imposed tariffs on Chinese electric vehicles, reflecting ongoing trade challenges despite complementary economic ties. Both sides expressed interest in enhancing strategic communication and expanding areas of cooperation as global tensions escalate.14
Israel, Hamas Agree to Ceasefire: Israel approved a ceasefire with Hamas, including the release of 33 Israeli hostages in exchange for hundreds of Palestinian prisoners, beginning Sunday. Humanitarian aid to Gaza is set to increase significantly, with up to 600 trucks of supplies expected daily. The agreement faced resistance within Israel’s government but was ultimately endorsed by Israeli Prime Minister Benjamin Netanyahu’s war cabinet. Hamas hailed the deal as a “dignity agreement”, while Israel emphasized the moral duty to bring hostages home. Aid organizations are preparing for logistical challenges as supplies enter the devastated enclave under tight security conditions.15