After little economic data this week, this morning's markets got news. May retail sales were weaker than expectations, up 0.3% overall and +0.1% when auto sales are set aside; estimates were for an increase of 0.6% overall and +0.4% when autos are subtracted. Taking some of the sting out of the weak data; April sales originally reported +0.1% were revised to +0.5%, ex autos in April revised from unch to +0.4%. Core sales, the figures that are used to calculate gross domestic product and exclude such things as autos, gasoline stations and building materials, were unchanged last month after a revised 0.2% increase in April. The prior month had previously been reported as a 0.1% decline.
Weekly jobless claims were slightly worse than expected; claims increased 4K to 317K, estimates were for a decline of 3K. Since the beginning of the year claims have averaged 324K. Employers are not firing but equally not hiring at a pace necessary to grow the economy to the levels most continue to expect. Claims are the best since 1999, a stat you may hear touted through the day, but it the level of wages in the new hires is very low and is still an impediment for the strong economic outlook investors continue to expect. The four-week average of claims, a less-volatile measure than the weekly figure, climbed to 315,250 from 310,500 in the prior week. The number of people continuing to receive jobless benefits increased by 11,000 to 2.61 million in the period ended May 31. The unemployment rate among people eligible for benefits held at 2% during that period, today’s report showed.
May import and export prices; expectations were for both to have increased 0.2%; both were up just 0.1%. Yr/yr import prices +0.4%, yr/yr export prices +0.5%. No signs of inflation in those numbers.
At 9:30 the DJIA opened -10, NASDAQ -8, S&P -6; 10 yr 2.63% -1 bp and 30 yr MBS prices +9 bps from yesterday’s close.
At 10:00, the final data for today, April business inventories; expected to be up 0.4%. As reported inventories increased 0.6% after increasing 0.4% in March. Higher inventories are a positive influence on GDP.
At 1:00 this afternoon Treasury will auction $13B of 30 yr bonds; yesterday’s 10 yr note auction didn’t experience the kind of demand that it has had recently.
The US has been caught flat-footed on the news Iraq is being overrun by what has been described as ‘ragtag’ Islamist militia. Talk of civil war is being bandied about. The administration is shocked how easily Islamists have taken cities and are marching toward Bagdad. According to reports now, Iraq officials and US military trainers have been warning that the Iraq military was not ready to assume control after the US took ground troops out of the country. Difficult to anticipate what will develop but traders and investors now have another geo-political situation to monitor. So far there isn’t any noticeable move to safety in US treasuries; some chatter that yesterday’ sell-off in the DJIA may have been partly driven by the situation. There is a big move in the price of crude oil, up $1.61 this morning at $106.01/barrel.
Technically, the bellwether 10 yr tested its 100 day average yesterday (2.67%); it held and this morning a little better but all of our models remain bearish at the moment. The stock market is starting softer again today basis the DJIA; after falling 102 points yesterday, at 10:00 this morning -41 after opening -10. Although still bearish technically, with the Iraq situation taking on increasing concerns it may improve interest rates somewhat, especially if the stock indexes continue to slide.