Retail Sales Data Not Doing Rates Any Favors
Yesterday’s CPI data validated the Fed’s constant refrain regarding persistent inflation. This morning’s Retail Sales data (for the month of January) is generally in the same column, suggesting the combination of economic strength and stubborn inflation is a bit more onerous than the bond market had been expecting based on average trading levels in December and January.
Given the size of the ‘beat’ (3.0 vs 1.8 f’cast, -1.1 previously), the bond market could probably justify a bit more panic than we’ve seen so far this morning. Granted, 10yr yields are indeed at their highest levels in more than a month, but MBS are managing to hold in line with yesterday’s low range so far. Moreover, Fed Funds Futures merely blipped higher and then returned to yesterday’s range.
Our outlook is the same as it has been since the jobs report: if rates aren’t moving lower, they’re moving higher. We continue waiting for data or some form of oversold exhaustion to suggest the corrective re-pricing of the rate outlook has run its course. Today is just another day where such signs clearly have not yet arrived.