Retail Sales A Little Sluggish While Consumer Sentiment Jumps

Treasury rates better this morning, generally down 3 bps across the curve, the 10 yr at 9:00 am ET 1.59% -3 bps. MBS prices at 9:00 am ET +6 bps from yesterday.

At 8:30 am ET January retail sales +0.3% as expected, less autos +0.3% as expected, less autos and gas +0.4% on forecasts of +0.3%. The weakness was in the control group that includes services that were thought to be +0.3% but reported 0.0%. The mixed retail sales report from the Commerce Department on Friday also showed purchases by households were not as strong as initially reported in December, revised from 0.3% to 0.2%. The control group in Dec. revised from +0.5% to +0.2%. The unchanged reading in core retail sales suggested consumer spending lost further momentum early in the first quarter after losing considerable speed in the October to December quarter. The data today flies in the face of the two monthly consumer indexes, both the U. of Michigan and the Conference Board’s confidence index.

Also at 8:30 am ET January import and export prices; imports were expected -0.2% but were 0.0%, yr/yr +0.3% on outlooks of +0.2%; export prices +0.7% against 0.0% expected, yr/yr +0.5% but forecast of -0.2%. Both imports and exports were stronger on a yr/yr basis.

The weakness in retail sales took a little steam from the stock index futures. Both import and export prices were slightly inflationary on a yr/yr basis, but markets are looking at it as a one-off increase.

At 9:15 am ET, January industrial production and capacity utilization were right on forecasts; production -0.3%, capacity utilization 76.8%; manufacturing was thought to be -0.2% but down just 0.1%.

The virus still a concern, but markets are taking a more positive view that the virus will be contained in China and not spread globally, a leap of faith that most appear willing to accept. Speculation is increasing that China is about to add fiscal stimulus to offset the economic weakness that is going to impact the country’s growth outlook. China’s GDP over the last 18 months at 6.0% may fall to 0.0% growth in the coming quarter. Authorities identified 5,090 new coronavirus cases, another jump in the daily tally that has stirred concerns over the trajectory of the disease and has raised fresh worries over whether China is offering an accurate appraisal of the epidemic’s scope.

At 10:00 am ET, the U. of Michigan consumer sentiment preliminary Feb index was expected to come in at 99.7 from 99.8 in January; the index leaped to 100.9 the highest since March 2018.

At 10:00 am ET December business inventories were thought to increase 0.1%, as released +0.1%.

Source: TBWS