March 11th, 2011 10:27 AM by Lehel S.
The overriding news this morning is the earthquake that hit Japan that set off a huge Tsunami,moving to Hawaii and by 10:00 this morning due to hit the west coast of the US. The earthquake at 8.9 is the strongest to hit Japan in over 100 years. Our prayers for the people of Japan where the death toll at 9:00 is at 300 and climbing.
Treasuries and mortgages started lower in price this morning, down 10/32 on the 10 and -6/32 on MBSs; by 9:00 the 10 had moved back to unchanged and mortgage prices off 2/32 (.06 bp) frm yesterday's strong close. At 9:30 the DJIA opened -35, the 10 yr note and mortgages unchanged from yesterday's closes. By 9:45 the DJIA was trading a little better with the 10 yr -5/32 and mortgage prices -4/32 (.12 bp).
At 8:30 Feb retail sales increased 1.0% as expected, ex auto sales up 0.7% also as forecast; ex gasoline sales sales were up 0.9%. The increase is the most in four months, spurred by job gains and more seasonable temperatures. The 1.0% increase in sales followed a revised 0.7% rise in January that was more than double the previous estimate. Sales climbed 2.3% at automobile dealers, consistent with industry figures that showed car purchases climbed last month to a 13.38 million unit annual pace that was the best since the government’s cash-for-clunkers program in August 2009. The reaction to the strong sales report was not as expected, the DJIA index fell more and at 9:15 traded down 60 points. US retail sales have been pushed off the table as stock markets in Europe and here are being impacted by the quake in Japan with insurance companies being hit hard.
Oil prices are tumbling this morning, crude fell under $100.00 before bouncing back a little and then retreating again at 9:30. While Saudi Arabia is preparing for the "Day of Rage" protest by Shiite Muslim minorities, there is little concern among oil traders that it will amount to much. The impact on oil markets is coming from Japan and the view that the damages will cause a decline in use for oil. Still a touchy market as always. That Japan will need less oil based on usage is questionable in our view but now traders are taking money off the table pushing the price lower.
At 9:55 the U. of Michigan mid-month consumer sentiment index, expected at 76.5 frm 77.5 at the end of Feb; the sentiment index hit at 68.2 the lowest since last Oct. The current conditions index at 83.6 frm 86.9; expectations index at 58.3 frm 71.6 and the 12 month economic outlook at 64 frm 85. Overall a very negative report but it didn't generate much selling in equity markets and actually caused the rate markets to fall a little in prices. The reason for the selling in the bond market was due to the inflation outlook in the report, it increased; inflation fears continue to rest under every data point.
At 10:00 Jan business inventories, expected up 0.8%, were up 0.9%, Dec was revised to +1.1% from 0.8%. Sales were up 2.0% with the inventory to sales ratio was 1.23 months. Not a market mover.
The bond and mortgage markets rallied nicely yesterday turning many of out technical indicators from neutral to slightly bullish, in order to confirm a move lower in rates near term we want to see more gains today which would confirm our initial technical observations.