March retail sales at 8:30 Monday morning were much better than forecasts; sales expected 1.0% overall were up 1.1% but ex auto sales were thought to be up 0.5% however sales were up 0.7%. The better report bolstered the stock indexes and took a little out of treasuries and MBSs. Sales were the best since Sept 2012. Feb sales, originally reported +0.3% were revised to +0.7%. Better sales suggest increased demand after Jan and Feb kept consumers from shopping. Sales at department and general merchandise stores jumped the most since March 2007. Prior to sales data the 10 was at 2.63%, after the release at 2.64%, 30 yr MBSs on the initial reaction were down 14 bps, at 9:00 the price improved to -6 bps. At 9:00 the DJIA futures was up 58 against fair value of -24.
At 9:30 a.m. Monday the DJIA opened +81, NASDAQ +34, S&P +12; 10 yr 2.64% +2 bp, 30 yr MBS price -5 bps from Friday’s close.
Last week was good for the MBS markets but a bad week for US stocks; the DJIA declined 386, NASDAQ -128. The 10 yield declined 11 basis points to 2.62% and 30 yr MBSs +47 bps. This week is Holy Week and Passover, many participants are out of the office Friday (Good Friday), the bond and mortgage markets will be closed; stock markets will trade.
A little increase in tensions over the weekend in Ukraine; Ukrainian flare-ups and tough words on the euro from the European Central Bank dominated markets Monday in Europe, with geopolitical risks carrying the greater weight. Here in the US traders and investors are not giving the situation as much concern as Europe where any increased sanctions on Russia will hurt the EU economies a lot more than the US. Very early this morning (5:00 am) US stock indexes were soft but began improving, then March retail sales took the outlook up a notch.
In recent trading in the equity markets there have been a few days when the key indexes opened better but by the end of the session indexes slipped. Monday a better start, how the stocks close will have direct influence on how the interest rate markets close. The recent decline in rates and stock markets may be running out of steam in the immediate future. The 10 yr note tested a key resistance level on Friday at 2.61%, Monday morning at 2.64 as once again the rate has failed at 2.60%. The MBS 4.0 May coupon also tested its resistance at 104.61, also failing to break through. We continue to believe there is more selling to come in the stock market; if correct the bond and MBS markets should continue to hold these low rates. How low rates will fall though isn’t likely to be much more from present levels unless the Russian/Ukraine turmoil increases to actual civil war with armed confrontations increasing. In the absence of geo-political events the treasury markets are approaching lows that will take a lot to penetrate
This week’s Calendar;
8:30 am March retail sales (as reported +1.1%, ex auto sales +0.7%, Feb revised from +0.3% to +0.7%)
10:00 am Feb business inventories (expected up 0.6%, as reported
8:30 am March CPI (+0.1%, ex food and energy +0.1%)
Apr NY Empire State manufacturing index (7.5 from 5.6)
10:00 am Apr NAHB housing market index (49 from 47 in March)
7:00 am weekly MBA mortgage applications data
8:30 am March housing starts and permits (starts +6.0% to 965K; permits -0.8% to 1.010 mil)
9:15 am March industrial production and capacity utilization ( production +0.4%, capacity utilization 78.7% from 78.4% in Feb)
8:30 am weekly jobless claims (+12K to 312K)
10:00 am Apr Philly Fed business index (10.0 from 9.0 in March
Bond and MBS markets closed; stocks open
10:00 am March leading economic indicators (+0.5%)
RateSnapshot courtesy of TBWSratealert.com