Ongoing weaker than expected economic data are giving Bonds a boost this morning.
Weekly Jobless Claims were higher than expected, while Retail Sales were lower than expectations.
Economic data has been soft for the past several weeks following back to back poor Jobs Reports for December and January. Should this trend continue, the Fed's hands may be forced to do more...like taper the taper.
Retail Sales in January fell -0.4% MoM following the prior month’s growth of +0.2%. Autos tugged down sharply on January sales posting a loss of -2.1% vs. -1.8% prior while gas station sales contributed gains of +1.6% vs. +1.5% prior. Initial jobless claims were up 8K in the February 8 week to a higher-than-expected 339K with continuing claims falling 11K to 2953K vs. 2964K prior. Treasuries are rallying off the disappointing data with 5-Year yields down -5 bps and 2s10s both down -2 bps.
Holding on by a thread; the bond and mortgage markets are better this morning after selling yesterday took the 10 yr note to critical technical levels at 2.76% where the 20, 40 and 100 day averages reside presently. Any additional selling today would have dealt a technical blow that would have changed the outlook, this morning though with weaker retail sales the 10 is holding, at 9:00 at 2.74%.
January retail sales was expected to be -0.1%, ex auto sales up 0.1%; as reported sales were -0.4% and ex auto sales unchanged from Dec. On top of that Dec sales were revised frm +0.2% originally reported to -0.1%. We noted yesterday that whatever was reported on sales in January would be seen in the context of very cold and snowy weather. January was the coldest in three years, with snowfall almost four times above normal, according to weather-data provider Planalytics Inc. That followed the coldest December since 2009 with snowfall 21% above normal. The stock market this morning isn’t giving much emphasis to the weather that in our view has had a very negative impact on the economy since the middle of Dec; the key indexes prior to the 9:30 open had the DJIA down 80 points.
Weekly jobless claims were also softer than forecasts; up 8K to 339K against consensus of generally unchanged. The four-week average of claims, a less-volatile measure than the weekly figure, increased to 336,750 from 333,250 the week before. Claims have been choppy the last month, the same reason, weather; is distorting the underlying true measurement of where the economy is now. Generally we don’t give much credence to weather conditions that are blamed for reports that deviate frm estimates and forecasts, but this time IS different. It may not mean much to those that are only reading and hearing about the extreme winter weather but those who are living it know intuitively that consumers are staying away from shopping and would-be employers are not seeing the immediate need to hire. Yesterday the South was hit again, this morning NY is getting slammed. Weather is, and has distorted, the real underlying economic condition. By that we don’t necessarily mean without weather issues the data would be better, what we are saying is that no one should make much out of the economic measurements one way or the other.
I am recommending to carefully float as Mortgage Bonds are attempting to trade back above support at a key technical level. If anything changes, I will get back to you.
