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Progress on Trade and Government Talks Lifts Yields

Yields headed into the Presidents' Day holiday weekend slightly higher after a tumultuous week.  Markets were supported by reports of a Congressional deal, preventing another government shutdown.  Markets were also buoyed by news that the U.S. and China had reached an agreement in principle to stave off an escalation in the trade war.  The week's busy economic calendar was highlighted by a stunningly large decline in December retail sales. 

The 1.2% decline (which was the largest since 2009) drew skepticism due to the generally positive holiday results announced by major retailers.  In other releases, January's CPI report had core inflation rising at a 2.2% annualized rate (overall at 1.6%) with real hourly wages (inflation-adjusted worker pay) rising at a robust 1.7% rate.  The manufacturing sector presented a mixed picture Friday, as a strong Empire Manufacturing survey contrasted with a January decline in industrial production, with weakness in the auto, defense, and mining sectors.

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