Outlier Consumer Confidence Read Rattles Rates Rally

Rattle: to upset especially to the point of loss of poise and composure. Disturb. 

While we can certainly say the bond market lost composure after 10am Consumer Confidence data,  it's not an outright defeat. Technical support has come to the rescue.  

Here is the Reuters Quick Recap...

RTRS-US JANUARY CONSUMER CONFIDENCE INDEX 60.6 VS DEC REVISED 53.3 (PREVIOUS 52.5) - CONFERENCE BOARD

RTRS-US CONSUMER CONFIDENCE INDEX MEDIAN FORECAST FROM REUTERS FOR JANUARY WAS 54.3

RTRS-US CONSUMER PRESENT SITUATION INDEX IN JAN WAS 31.0 VS DEC REVISED 24.9 (PREVIOUS 23.5)

RTRS-US CONSUMER EXPECTATIONS INDEX 80.3 IN JAN VS DEC REVISED 72.3 (PREVIOUS 73.6) - CONFERENCE BOARD

RTRS-US JOBS HARD-TO-GET INDEX 43.4 IN JAN VS DEC REVISED 46.0 (PREVIOUS 46.8) - CONFERENCE BOARD

RTRS-US 1-YEAR CONSUMER INFLATION RATE EXPECTATIONS 5.5 PCT IN JAN VS DEC 5.3 PERCENT

RTRS-JANUARY CONSUMER CONFIDENCE AND EXPECTATIONS INDEXES BOTH AT HIGHEST SINCE MAY 2010

RTRS-JANUARY CONSUMER INFLATION RATE EXPECTATIONS HIGHEST SINCE MATCHING 5.5 PCT IN JULY 2009

RTRS-JANUARY CONSUMER CONFIDENCE PRESENT SITUATION INDEX AT HIGHEST SINCE NOVEMBER 2008

Eonomists polled by Reuters were calling for a range of estimates between 52.0 to 57.0.  So when the actual print was 60.6, the back up in bonds was logical.  But for what may be a combination of reasons, 10's are holding their ground near the mid-range pivot at 3.40%.  Contributing factors that could be helping include weak data on home prices from both Case-Shiller and the FHFA as well as the Richmond Fed's lower-than-previous readings in both the manufacturing and service sectors.

But for the fringy, kooky chartists out there (like me), there's enough underlying psychology in the chart of consumer confidence itself, to explain why this much-better-than-expected confidence result isn't sparking a runaway selloff in bonds.  Simply put, even today's 60.6 reading falls in the realm of "the woods," in that we'd need Confidence to break quite a bit higher in order to get that "out of the woods" feeling.  I think the chart tells the whole story....

Bottom line, of course there's not a direct causal relationship between this red line and bond market resilience, but it's the sort of COINCIDENT indicator that helps refine my overall "sense of the market."  In other words, in this context, and considering the offsetting data, this chart makes it easier for me to feel like the bond market is perfectly justified to hold support in the current range.  How about you?

NOTE: Despite the support, MBS are down enough for lenders who were out early with prices to consider repricing for the worse.