The drivers: August Business Inventories came in as expected, up .2%. September Headline Retail Sales also came in as expected at +.6%; ex-autos it was slightly better than expected at .5% vs. expectations of .4%. The PPI came in a bit hotter than expected with a reading of .3% vs. .2% expected. Both the MOM and the YOY Core PPI came in as expected at .2% and 1.2% respectively. This data is all a tad bit negative for pricing and is why we are seeing some pressure to sell. Where we are getting some support is from the October Preliminary Michigan Consumer Sentiment Index that came in much lower than expected at 87.9 vs. expectations of 91.9 - better jobs numbers don't seem to be translating into more confident consumers in spite of better retail sales this month - you may recall that they were weak last month and that the NFP from last week was also on the weak side though the Labor Participation Rate has increased. This is all a bit confounding - a word Janet Yellen used in her comments this morning.
Janet Yellen's comments: From the Associated Press - "Federal Reserve Chair Janet Yellen says the slow recovery from the Great Recession has surprised economists, confounding long-held beliefs about growth and inflation. Her remarks at an economic conference may help explain why the Fed has been reluctant to raise U.S. interest rates." "She says the aftermath of the crisis has "revealed limits in economists' understanding of the economy." For example, tumbling home prices reduced consumers' willingness to spend more than economists had envisioned. And a steady decline in the unemployment rate has failed to lift wages and inflation as much as expected."
I would expect this dovish comments to have a positive impact but so far that has not been the case. Perhaps bond traders were hoping for more direction in her comments but there was no mention about interest rates regarding when the Fed might next raise them. They raised them last December and the stock market proceeded to take a big tumble so they are being extra cautious. We are very close to our recent lows and the RSI remains below the oversold threshold. With the election drawing near, I think traders might be a bit skittish about who will win and how that might impact the economy. The fact that China's inflation rate was higher than expected isn't helping. I would lock on any up day in the bond market and would probably not wait for an up day since the resistance seems to be stronger than the support and the support is a fair amount further down than the resistance is up.
As always, I'm happy to help and in spite of all the college football over the weekend, I'll be available if you need me. I can be reached at 801-893-1737 or 702-812-1214. Make it a great day and a better weekend.