The roller coaster continues

A combination of AI-related disruption fears, emerging weak spots in private credit, and concerning economic data weighed heavily on certain parts of the market last week. Stocks broadly moved lower and corporate credit spreads widened, while the 10-year Treasury yield fell below 4% and gold remained in demand as investors sought safety.  

Last week’s inflation data added to the unease as it highlighted continued pricing pressure in the supply chain. The January Producer Price Index (PPI) increased 0.5% month-over-month and 2.9% year-over-year; both measures were hotter than expected. The report highlighted what many had anticipated: businesses are experiencing higher costs, and as evident from the stronger profit margin component of the report, passing those costs through to customers.

Given last week’s data, the balance of risk may still favor a pause due to the inflationary pressure. However, this week’s unemployment data has the potential to alter the fast-moving economic narrative yet again.