Interest rate markets opened soft this morning and became more slushy after the 8:30 Nov retail data. Retail sales were expected to be +0.7%, as released sales were up 1.3%; excluding auto sales the estimates were an increase of 0.4%, as released ex autos were up +1.2%. Yr/yr retail sales were +1.9% in Nov, the first yr/yr increase since August 2008. On the report prices declined a little more but by 9:00 the 10 yr and mortgages, while still weaker, recovered back to pre-retail sales. At 9:00 the 10 yr note -10/32 at 3.54%, mortgage prices -9/32 (.28 bp), the DJIA +37. At 9:30 the DJIA opened +34, 10 yr note -10/32 and mortgage prices -9/32.
Also at 8:30 Nov import prices were up 1.7%, yr/yr +3.7%; export prices were +0.8%. The increase in import prices keeps inflation concerns on the table, although markets are not concerned to the extent that inflation will begin to be priced into the long end of the curve—-yet. With the Fed continuing to re-affirm it will not begin to tighten monetary policy until late in 2010, investors are willing to ignore potential inflation. The Fed can control the short end of the curve and short term rates by moving the FF rate higher, but the Fed does not have that kind of influence at the long end (10s and 30s and mortgages). On again, off again; inflation concerns with interest rates at zero (1 mo T-bill today at 0.01%, 3 mo 0.03%) will not dissipate and will continue to be a worry point.
The improvement in retails in Nov is adding to the outlook that consumers are increasingly more comfortable with the economic outlook. At least that is the argument coming from the Street; the Street has only one way to look at things. If you are in the business of selling and gathering money for investment, you have little problem making silk purses out of swines’ ears. Recall back in 2007 when all signs were pointing to a serious problem in the housing sector with all that garbage that S&P and other rating agencies were passing off as AAA–warning signs that the wheels were about to come off; there were no voices coming from The Street that investors should get out of the equity markets. It was only after the DJIA declined 3000 points that investment firms were “forced” to accept reality. As Mohammad Al Arian commented on CNBC this morning, measuring economic data must be examined as to the quality as well as the headlines. Al Arian, CEO of PIMCO remains very skeptical about the quality of this believed recovery.
The dollar is stronger today against the euro and yen, but so far has had no visible impact on the equity markets. Crude oil tried to trade higher early but is slightly weaker at 10:00; gold quietly weaker.
Technically, the rate markets are increasingly more bearish with the 10 yr note pushing to yields not seen since Oct. Mortgages track along as interest rates increase. Remember, for the past few days, floating rate locks are dangerous. Do not go against the flow, and the flow presently is for lower prices and higher rates.
Market Minute information for December 11, 2009 provided by:
 Patsy Bailey Mortgage Banker |
 4801 Lang Ave NE Suite 100 Albuquerque, NM 87109 4001 Office Court Ste 603 Sante Fe, NM 87507 Cell: 505.715.3231 Office: 505.473.4045 ext.109 E-mail: patsybailey13@gmail.com |
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