This morning's Retail Sales report clearly set the tone early for bond markets. MBS and Treasuries both popped noticeably higher and in good volume, but certainly held off on any headier rallies until the impact of the stock market open could be seen. As stocks opened lower, volume in bond markets surged again, carrying yields to precisely match all-time lows in 10's. German Bunds ratcheted to yet another all-time low just under 1.21, and MBS prices for August coupons hit all time highs. The Empire State manufacturing data and Business Inventories were generally passed over in favor of the aforementioned events.
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Morning Reprice Alerts and Updates
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and updates issued via email and text alert to MBS Live subscribers
ECON: Business Inventories Slightly Better Than Expected
* Inventories +0.3 pct vs +0.2 consensus, Sales as expected.
Sales. The U.S. Census Bureau announced today that the combined value of distributive trade sales and manufacturers’ shipments for May, adjusted for seasonal and trading-day differences but not for price changes, was estimated at
$1,245.2 billion, down 0.1 percent (±0.2%)* from April 2012 and up 5.1 percent (±0.4%) from May 2011.
Inventories. Manufacturers’ and trade inventories, adjusted for seasonal variations but not for price changes, were
estimated at an end-of-month level of $1,578.4 billion, up 0.3 percent (±0.1%) from April 2012 and up 5.2 percent
(±0.3%) from May 2011.
10 Yr Yields Trade Near All-Time Lows Following Retail Sales
The overnight session was extremely quiet with low volume and volatility. Things got off to a slow start in Asian hours owing to a market holiday for Japan though comments from China's PM Wen that the rebound was not yet stable helped fuel slight gains early. Things ratcheted another notch to the positive side in European hours as the ECB backtracked on their previous stance on losses for Spanish bond-holders (before they were said to be immune to losses through the restructuring, but now, not so much. They ECB has declined to comment on the decision).
10yr yields were already trading in a tight range just under 1.50 at the open, but moved quickly lower from 1.48 to 1.45 following the worse-than-expected Retail Sales data. 10yr yields hit all time lows last month of 1.442. MBS opened just slightly higher than Friday's latest levels and got a similar shot in the arm after Retail Sales, moving from 103-14 to 103-19.
Both MBS and Treasuries have now backed off their rallies just slightly. The Business Inventories report prints at 10am and before that, the cash open for equities markets could be the next market-moving consideration for bond markets.
ECON: Empire State Manufacturing Survey Slightly Improved In July
The July Empire State
Manufacturing Survey indicates that
manufacturing activity expanded
modestly over the month. The
general business conditions index
rose fi ve points to 7.4. New orders,
however, declined, as that index
slipped into negative territory
for the fi rst time since November
2011, falling five points to -2.7.
The shipments index increased five
points to 10.3, indicating a rise in
shipments. The prices paid index
declined for a fourth consecutive
month, dropping twelve points to
7.4, its lowest level since mid-2009.
The prices received index inched
up three points to 3.7. Employment
levels climbed higher, with the
employment index rising six
points to 18.5, while the average
workweek index fell three points to
zero. Future indexes were generally
positive, but many continued to
drift downward and suggested that
the level of optimism about future
conditions remains below the level
earlier this year.
In a series of supplementary
questions, manufacturers were
asked about their sales performance
and expectations for 2012 compared
with 2011. The median respondent
reported that sales were up
4.5 percent for the first half of 2012
compared with the first six months
of 2011, and are expected to be
up 5 percent for the full calendar
year—values slightly lower than
what were reported in last July’s
survey. In the current survey, the
median respondent indicated a
2 percent increase in the number
of employees—both for the fi rst
half of this year and for what is
expected for the full-year 2012. On
another question, moderately more
respondents indicated that they
had ramped up rather than scaled
back production plans since the
beginning of the year, refl ecting a
bit more optimism than last year’s
ECON: Retail Sales Much Weaker Than Expected
* -0.5 vs +0.2 Consensus
* -Core -0.4 vs 0.0 Consensus
* 3rd straight decline, first 3-month decline since 2008
The U.S. Census Bureau announced today that advance estimates of U.S. retail and food services sales for June, adjusted for seasonal
variation and holiday and trading-day differences, but not for price changes, were $401.5 billion, a decrease of 0.5 percent (±0.5%)*
from the previous month, but 3.8 percent (±0.7%) above June 2011. Total sales for the April through June 2012 period were up 4.7
percent (±0.5%) from the same period a year ago. The April to May 2012 percent change was unrevised from -0.2 percent (±0.2%)*.
Retail trade sales were down 0.5 percent (±0.5%)* from May 2012, but 3.5 percent (±0.7%) above last year. Nonstore retailers sales
were up 10.9 percent (±3.1%) from June 2011 and furniture and home furnishings stores were up 7.8 percent (±2.8%) from last year.
Live Chat Featured Comments
Matthew Graham : "Amid recovering new and existing home sales, JPMorgan said that its mortgage loan origination revenue grew nearly 30% year-over-year and 14% sequentially to $43.9 billion. Wells Fargo's mortgage also grew in the second quarter and nearly doubled relative to year-ago levels, reinforcing what may be a widespread recovery in the housing market.
For both banks, mortgage lending stood out as a strong point in a generally weak quarter for revenue, as interest-based earnings declined. from http://finan"
Adam Quinones : "...just wait for the media to sink its teeth into that!"
Adam Quinones : "huge."
Matthew Graham : "iirc, both JPM and Wells noted benefits from mortgage divisions"
Christopher Stevens : "I have noticerd that bank earnings have been going well. I have not read too much about it though. Does anyone know what part mortgage refinancings are playing in the good earnings numbers?"
Adam Quinones : "Id rather go to lax camp."
Christopher Stevens : "quote from my 12yr old this morning..."I would rather deal wathe interest rate volatility than go to my lax camp today." Guess I talk a little about rates at home."
Andrew Horowitz : "yeah and now the question that was posited on CNBC this morning, did he know about the price fixing in LIBOR since he was so involved with all the banks back then?"
Matthew Graham : ""moral hazard" etc... "
Matthew Graham : "that wasn't his decision as much as it was an angry congress/public"
Andrew Horowitz : "but your point is correct, they state the obvious whitout offering up any solutions"
Andrew Horowitz : "Saw it, and in hindsite she was correct he never should have let Lehman fail"
Andy Pada : "VB, your strategy of waiting until Monday to lock has been coming up aces!"
Matthew Graham : "Anyone see "Too Big To Fail?" You know that part where Christine Lagarde calls up Hank Paulson and basically says "what the heck man?! Get your stuff in order pal!" That's basically how all these IMF wires sound to me anymore. "
Matthew Graham : "Not sure why, but I have a hard time not thinking of the IMF as an entity that states the obvious, implies that a solution exists, yet offers no specifics in addressing the issue. "
Matthew Graham : "RTRS- IMF SAYS DOWNSIDE RISKS TO GROWTH OUTLOOK 'LOOM LARGE,' REFLECT RISKS OF DELAYED OR INSUFFICIENT POLICY ACTION; 'UTMOST PRIORITY' IS TO RESOLVE CRISIS IN EURO AREA "
Matthew Graham : "RTRS- IMF SAYS THERE IS POTENTIAL FOR 'SIGNIFICANT ADVERSE MARKET REACTION' IF MARKETS DON'T FEEL U.S. "FISCAL CLIFF" BEING DEALT WITH; DEBT CEILING SHOULD BE RAISED WELL AHEAD OF DEADLINE "
Matthew Graham : "RTRS - IMF SAYS UNCERTAINTIES OVER ASSET QUALITY OF BANKS' BALANCE SHEETS IN EUROPE MUST BE RESOLVED QUICKLY, WITH CAPITAL INJECTIONS AND RESTRUCTURINGS WHERE NEEDED "
Matthew Graham : "RTRS- IMF SAYS SEES RISK OF A HARD LANDING IN CHINA WHERE INVESTMENT SPENDING COULD SLOW SHARPLY GIVEN OVERCAPACITY IN NUMBER OF SECTORS "
Matthew Graham : "RTRS- IMF SAYS FINANCIAL MARKET, SOVEREIGN STRESSES IN EURO ZONE PERIPHERY COUNTRIES HAVE 'RATCHETED UP', GROWTH IN NUMBER OF EMERGING ECONOMIES LOWER THAN FORECAST "
Andrew Russell : "180 days on flips, m@t"
Steven Fishman : "Matt can you tell me their flipping rules? Do they allow 91 days or do they require longer?"
Matt Hodges : "we do, but not personally"
Steven Fishman : "Anyone using M&T for 203K?"
Matthew Graham : "RTRS - NY FED'S EMPIRE STATE PRICES PAID INDEX 7.41 IN JULY VS 19.59 IN JUNE "
Matthew Graham : "RTRS - NY FED'S EMPIRE STATE NEW ORDERS INDEX -2.69 IN JULY VS 2.18 IN JUNE "
Matthew Graham : "RTRS - NY FED'S EMPIRE STATE EMPLOYMENT INDEX AT 18.52 IN JULY VS 12.37 IN JUNE"
Matthew Graham : "RTRS- NY FED'S EMPIRE STATE INDEX 7.39 IN JULY (CONSENSUS 4.00) VS 2.29 IN JUNE "
Matthew Graham : "RTRS- US RETAIL SALES DECLINE FOR THIRD STRAIGHT MONTH, FIRST 3-MONTH CONSECUTIVE DECLINE SINCE 2008 "
Matthew Graham : "RTRS - US JUNE RETAIL SALES EX-AUTOS -0.4 PCT (CONS 0.0 PCT) VS MAY -0.4 PCT (PREV -0.4 PCT) "
Matthew Graham : "RTRS - US JUNE RETAIL SALES -0.5 PCT (CONSENSUS +0.2 PCT) VS MAY -0.2 PCT (PREV -0.2 PCT) "