The Day So Far: Bonds Open Weaker, Fight Back to Unchanged

Economic Data Recap:

Retail Sales - Perhaps the most anticipated report of the week, December Retail Sales, missed expectations this morning, rising only 0.1 pct versus a +0.3 pct consensus and a +0.4pct reading in November. Sales excluding autos fell for the first time since May 2010, down 0.2 pct vs last month's +0.3 pct. Gas sales led the decline falling 1.6 pct after rising 0.9 pct last month. Factoring out gasoline, retail sales would have hit their 0.3 pct expectations. Core sales, however (excluding gas, cars and building materials) still fell 0.1 pct vs Novembers 0.3 pct gain. 

Jobless Claims - 399k headline vs 375k expectations... After a two decent readings in the 360's in early December, claims moved up again in the last two weeks of the month, but there was still some hope that 4-week moving average would continue lower. Today's report is the first turn higher for the 4-week average since 11/26, or in 6 weeks. Continuing claims also rose from 3.609 mln to 3.628 mln. Although these are weaker than expected jobs numbers, the bigger market movers are the Retail Sale.

Euro Headline Recap

ECB Pres Mario Draghi generally dominated headlines early in the NY Session, not because he said anything shocking, but rather because he's the Bernanke of the EU, and folks tend to tune in when he gives press conferences after ECB Rate Decisions.  Some of those most interesting takeways were that the banks that borrowed in the recent huge 3yr lending operation are not the same banks that park money with the ECB and that their bidding behavior was consistent to banks that had bonds coming due. 

Draghi also said it was not "possible to express judgement of confidence" in the European economy despite some good signs and that the ECB is "really very concerned" about Hungary issues.

Market Reaction

After gaining overnight, stocks pulled back abruptly on the Retail Sales miss.  Draghi comments didn't help and Jobless Claims 4-week moving average turning higher for the first time in 6 reports probably didn't help either, but only inasmuch as it was an "absence of something bullish" as opposed to the "presence of something bearish."

Here's how 10yr yields and Stock Futures look over the past  2 days:

In the longer term, we've been tracking a "triangle" (converging highs and lows) in 10yr yields which has broken yesterday and is confirming that break this morning, take a look:

When triangles break, we tend to look for the next technical line in the sand to assess shifting trends.  The break merely tells us the uptrend from mid December is probably defeated for now and we can either look for sideways trends, reversals, or different uptrends.  I generally prefer to look for signs of horizontal resistance/support after diagonal trends have been broken.  In the current case, here are some likely contenders for sideways resistance in 10's (the pink line is just over 1.89):

That has translated to a fairly standard-issue case of similar resistance-bouncing for MBS, which are not very impassioned today--preferring to trade more sideways while watching stocks and bonds pitch and roll:

If the upper line continues to offer resistance, we'd consider anything within this sideways range "OK," that is, we wouldn't fret much over another bounce around 102-26 given how narrow the trading range has been for MBS.  Next major event is today's 30yr Bond Auction.