This morning's major releases include CPI and Retail Sales. The Consumer Price Index rose 0.5% and Core CPI (ex food and energy) rose 0.1%. Headline CPI rose 1.5% in December year over year, which is the largest rate of increase since December 2009. However, core CPI increased only 0.8% year over year in December, the same pace of November. The biggest increases in prices came from energy-related expenses and gasoline, up 4.6% and 8.5%. Retail Sales rose at a less-than-expected rate of 0.6% in December. Strip out auto and gas, retail sales rose only 0.4% in December and November was revised lower from 0.8% to 0.6. What is interesting about today's releases is that the inflation report and the sales reports, released simultaneously, reflect the challenges we expect in 2011. As prices on food and energy related products go up, consumers become skittish and slow down their spending. Next on the docket was the Michigan Consumer Sentiment Survey, which dipped to 72.7 from a 74.5, the first fall in 3 months. Expectations were for a print of 75.4. The last piece of data was the release of Business Inventories. Up for the twelfth straight month, total inventories rose by .2% in November, along with total sales up 1.2%.
Mortgages have traded well this morning after the CPI and Retail Sales releases. Buying today has pushed the market above the 40-day moving average for the first time since early November and a close below the 3.28% mark on the 10yr would suggest further upside (better rates) is possible. We are coming right back into good resistance here at the 3.28 to 3.30 yield marks. Currently the 10yr is up 7, trading a 3.273%yld, while mortgage backs are slightly off the highs, trading up 5 ticks in the lower coupons.
Just a reminder that the bond market is closed on Monday in honor of MLK. Have a great weekend!
Joe Webb
VP Trading, Pipeline Management
PrimeLending, A PlainsCapital Company
18111 Preston Road, Suite 900
Dallas, Texas 75252
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