Early trade in US stocks followed the better stock markets in Europe this morning. July retail sales were out at 8:30, disappointing; unchanged from June and ex auto sales up just 0.1%, estimates were for an increase of 0.3% overall and +0.4% ex autos. The softer retail sales didn’t cause any declines in the stock indexes, the 10 yr note started early this morning at 2.46% +1 bps but by 9:00 at 2.43% -2 bp. 30 yr MBS prices at 9:00 better, +17 bps from yesterday’s close. Retail sales were the worst in six months, as car demand slowed and tepid wage growth restrained U.S. consumers. Consumers are struggling, very high food prices with low wages isn’t a solid building block. That however doesn’t bother traders in stocks as most economists continue to forecast a stronger economy in the months ahead. Buoyed by the advance Q2 GDP jumping from -21.% in Q1 to +4.0%, investors continue believe better times are ahead. Not to rain on any parade, but when Q1 advance GDP was reported initially the read was a decline of 0.1%, from there each additional report came in weaker.
In Iraq, the US is considering sending 130 advisors to assist in the humanitarian efforts to save the Yazidis that are trapped on the top of a mountain. U.S. officials said the rescue mission is one of many options the U.S. military is weighing after dropping food and water to dying refugees over the past six days. The U.K. government also announced it was sending several Chinook transport helicopters to the region to assist in evacuation of those trapped. In Israel the truce between it and Hamas is winding down with no real progress, both sides said there had been scant progress toward reaching a deal during the talks in Cairo. In Ukraine the Russian relief mission is still moving toward the region where fighting has been extensive; Ukraine officials concerned that the 300 semis may be filled with weapons. The red Cross saying it isn’t in charge of the relief supplies.
Single-family housing prices rose 4.4% in the year that ended in the second quarter, the slowest annual pace since 2012, according to a report released Tuesday by National Association of Realtors. Median prices for existing single-family homes grew year-over-year in 122 of 173 metropolitan areas it tracked, while prices declined in 47 metro areas. Only 19 areas showed double-digit year-over-year price increases, a substantial drop from the 37 cities that showed such increases in the first quarter. Good news for possible home buyers, but not so much for potential home sellers. Overall the housing sector remains weak; normally the driver in any recession recovery, this time housing is more a lagger than a leader.
The DJIA opened +65, NASDAQ +20, S&P +10. 10 yr at 9:30 2.44% -1 bp; 30 yr MBS prices +16 bps.
June business inventories at 10:00, expected +0.4%, as reported +0.4%.
Somewhat confusing so far this morning; the stock market better on weak retail sales Japan’s economy declining, Europe’s economies slipping but the markets over there are better, China’s real estate markets beginning to crack with a lot more to come as the country has over-built. The geo-political concerns somewhat less this morning. This afternoon Treasury will auction a $24B new 10 yr note, usually a depressant leading into it, not this morning. One continuing support for the US 10 yr note, rates in Europe are lower for quality debt; German 10 yr bund yielding 1.04% this morning. If one wants safety the US 10 is the place to be.
All technicals remain bullish in the treasury and MBS markets, subject to influences from geo-political conditions and US economic data of which there has not been much in the last 10 days. July retail sales this morning, weaker than thought is one support for the rate markets. I am not real sure why the MBS markets are performing so well this morning, but we will take it. We suggested locking last night, a not-so-good call given the markets this morning.
PRICES @ 10:00 AM
10 yr note: +6/32 (18 bp) 2.43% -2 bp
5 yr note: +4/32 (12 bp) 1.59% -2 bp
2 Yr note: +1/32 (3 bp) 0.42% -1 bp
30 yr bond:+11/32 (34 bp) 3.26% -1 bp
Libor Rates: 1 mo 0.156%; 3 mo 0.233%; 6 mo 0.328%; 1 yr 0.555%
30 yr FNMA 3.5 Sept: @9:30 102.38 +16 bp (+7 bp from 9:30 yesterday) 4.0 coupon 105.53 +13 bp (+11 bp from 9:30 yesterday)
15 yr FNMA 3.0 Aug: @9:30 103.53 +5 bp (-2 bp from 9:30 yesterday)
30 yr GNMA 3.5 Aug: @9:30 103.85 +16 bp (+14 bp from 9:30 yesterday) 4.0 coupon 106.50 +11 bp (+9 bp from 9:30 yesterday)
Dollar/Yen: 102.33 +0.07 yen
Dollar/Euro: $1.3389 +$0.0020
Gold: $1314.20 +$3.60
Crude Oil: $97.41 +$0.04
DJIA: 16,597.63 +3709
NASDAQ: 4410.49 +21.24
S&P 500: 1939.89 +6.20