Retail Sales jumped .3% and .8% ex-autos, well above economists’ expectations. Gains in food, beverages, and gasoline station receipts led the way. Auto sales pulled down the headline print, falling 2.0%. Traffic was higher for most Retail Stores as well, with notable gains in women’s apparel outlets like Ann Taylor.
Given the wicked weather in February, the numbers are impressive but suspect. Is the consumer coming out of a two-year shell or is it just time to replace some items that have simply worn out? Time will tell. If you’re looking to Consumer Sentiment for the answer, look again. The index fell in this morning’s release, down 1.1 points to 72.5. Both current conditions and future expectations fell with the latter down only slightly. The index is moving sideways, a mirror image of our employment situation. As employment goes, so will our feelings about how fat your wallet is. Reaction to all of the above has been somewhat of a whipsaw.
Post Retail Sales, treasuries and mortgage backs fell like a rock with the 10 year note down 14/32’s at one time. Mortgage backs were off 11/32’s at the same time. Stocks as one would expect, were up 20 something and looking to breakout of upper part of the range on S & P’s (1150). Once Consumer Confidence was released, traders threw cold water on stocks and our fixed income paper started a comeback. Currently, the 10 year note is up 1/32nd but mortgage backs are still off 7/32’s (we priced down 8/32’s). Technically, the early selling triggered a new bearish trend (higher interest rates) but 10 year notes and 30 year bonds remain neutral on this study. Given the volatile trading conditions, a bullish divergence has come into play with the chart now working on an outside day up (bullish formation).
Given the trading dynamics of late, we expect any rally to be muted. Over the past week or so, I’ve talked about the triangle formation on the 10 year note daily chart. Looking at that chart below, you can see how the formation is “winding itself” tighter and tighter and will eventually “breakout” into a major trend move. 3.89% and 3.43% mark the extremes (currently trading 3.72%). Until this happens, we expect the market to be range bound between the two extremes. Given the stabilization in the economy and slowly improving data, the higher percentage odds will be towards higher yields. Time frame on this is tough to call with our most likely guess being the second half of the year.
With so many variables to consider – employment, sovereign debt, political rang lings’, and on and on – managing interest rate risk and helping our borrowers with their decisions on Austin mortgage rates is very hard to handicap. Best advice is to use any rally to lock your interest rate in!
We’ll try to wrap it up for the week later today.