EMISSIONS: UK ETS Auction Clears Highest Since Dec 2024

• Fed Funds implied rates sit as much as 3bp higher for 2025 meetings with the retail sales and Empire data digested.
• Cumulative cuts from 4.33% effective: 0.5bp for Wed, 6.5bp May, 21bp Jun (vs 22.5bp pre-release), 30bp Jul (vs 31.5bp) and 61bp Dec (vs 64bp).
• We suspect the control group is doing a lot of the work behind the rates sell-off (+1.0% vs cons 0.3, partly offset by a negative revision to an even weaker January) considering overall sales more clearly disappointed in both the latest increase and revisions.
• The former appears to be welcomed from a growth angle as it ruled out a weaker print considering some particularly mixed indicators noted ahead of the release.
• Elsewhere, the Empire State mfg index saw the highest input cost inflation in over two years but also sliding confidence in the admittedly volatile survey. Markets have fluctuated in putting more weight on inflationary positive and growth negative implications from US tariff setting in recent months. 

• over 13,000 TYJ5 109 puts, 1 last ref 110-15.5

Headline advance retail sales were much weaker than expected in February at 0.2% M/M (0.6% expected, -1.2% prior rev from -0.9%), but this was offset by strong performances in core categories. Ex-auto/gas rose 0.5% (vs 0.4% expected, with the "beat" more than offset by a downward revision to prior at -0.8% vs -0.5% prelim). But control group sales rose 1.0% vs the 0.4% expected, more than offsetting the downward revision to Jan (-1.0% vs -0.8% prelim).

• The control group reading - which is an input into GDP - was a 5-month high.
• The reason for the discrepancy between the fairly soft headline growth and the very strong control is that the latter excludes gasoline (-1.0%, weakest in 5 months, after +1.3%) and food services which unrounded was the weakest in 24 months (-1.54% after flat in Jan). That said, control group sales also exclude categories that rebounded if only to soft rates of growth: auto dealers (-0.6% after -3.8%) and building materials (+0.2%, strongest in 5 months, after -1.9%, which was the worst in 12 months).
• Bigger-picture, retail sales continue to slow: the 3M/3M annualized rate fell to 2.3% for headline (7-month low), with control group - which is a good gauge for PCE goods consumption in GDP - at 2.6% (11-month low). Ex-autos/gas 3M/3M annualized was a 56-month weakest 0.5% - the lowest since June 2020 (ie pandemic).
• This is starting to show in the Y/Y rates total at 3.1% Y/Y (4-month low), ex-autos/gas at 3.5% (6-month low), though control group picked up to 4.4% from 3.7%.