If you had to script out the most likely course of events after Tuesday's big post-CPI bond rally, the safest expectation would be for a token pull-back that helps consolidate and solidify a majority of the gains.  In order for that baseline assumption to pan out, you'd need this morning's data to come in neutral to slightly stronger and with 2 beats (retail sales and Empire State) and one miss (PPI), that's exactly what we have.

All that having been said, let's not give too much credit to PPI or Empire State as they pale in comparison to Retail Sales.  The latter is the reason for this morning's moderate weakness, if we could only choose one.  We could also consider that the Empire State manufacturing data is the most recent (November data vs October for Retail Sales and PPI) and also the most bullish in terms of the result versus the forecast.

The most immediate implication is a strange combination of a concern and a victory as yields bounce at the 4.43 technical level in fairly obvious fashion.  Based on overnight trading, markets were already leaning in a bouncy direction before the data.

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So why a victory?  Rate bulls, please be patient...  We don't want to do the big rally all at once.  We need periodic consolidation  and current yields--even after this morning's weakness--would make for the 2nd best closing level in more than 2 months.  When this party is officially underway, we will be seeing a clear move through the gap that currently exists between 2022's high yields and the most recent lows.

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