The Day Ahead: Retail Sales Uninspiring. Waiting on Auction, FOMC

This morning's release of November Retail Sales (advance/estimate report) failed to inspire any directional shifts in markets despite the coming in 0.4 pct lower than forecast at 0.2 pct.  Stocks and Treasuries seemed to pay some brief attention to the headlines, but a quick examination of the data suggest it's obsolescence, having a margin of error that could either take it over the consensus or down into negative territory.  The trading that has followed seems to be a simple extension of the overnight themes of illiquidity, apathy, and slightly weaker bond markets, described in slightly more detail in this morning's alert from MBS Live:

MBS Open Slightly Weaker After Uneventful Overnight Session 8:28AM

MBS are starting out 5/32nds lower at 101-30 in Fannie 3.5's. 10yr Treasury yields are up about 3 bps at 2.047 and stock futures have clawed back about half of yesterday's losses. S&P's were at 1236 at 4pm yesterday and stand at 1242.25 at the moment. 

We're not reading too much into overnight trading or events. Volume was really too light to justify that. Also, it's hard to say how much domestic bond markets are responding to European markets versus setting up for this afternoon's auction, or even just merely bouncing around aimlessly inside the range. 

If someone was looking to chalk up overnight movement to market events, he/she might point out generally stronger short term Spanish debt auctions earlier this morning as well as the first short term EFSF auction--also slightly better than expected. But when you get to the heart of the matter, 10yr yields didn't move more than a bp on either of those events and German Bund yields fell back in line with their previous levels as well. 

Retail Sales will hit presently (830am) and the afternoon is busy as well with the 1pm 10yr auction and the 215pm FOMC Announcement.

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Here's a video from the MBS Live Dashboard showing how things have evolved since Retail Sales

It's important to note that the Retail Sales report is NOT driving this slight ongoing weakness in bond markets this morning.  This isn't one of those marginally counterintuitive reactions to a piece of economic data that was weaker-than-expected, but not weak enough to prompt gains for fixed income.  Stock markets have done absolutely nothing with the data since it hit and 10yr Treasuries, if anything, are following German Bunds or simply maintaining a slightly defensive stance ahead of their 1pm Auction.  When that, and the 215pm FOMC Announcement pop, there SHOULD be a bit more clarity/less apathy, but even then, we could be disappointed by characteristically apathetic mid-December markets.