MBS Live Day Ahead: Retail Sales is Back! Will Traders Pretend Nothing Changed?

Perhaps it wasn't their fault, but several top tier economic reports up and left us during the government shutdown.  We knew we'd see them again at some point, but in the meantime, we had to adapt to gleaning economic cues elsewhere.  Moreover, we're left to wonder what the government shutdown time may have done to corrupt the first few rounds of economic reports that are returning after their forced hiatus.

What am I getting at, you might ask?  It's hard to imagine just how big and bureaucratic the US government is.  The agencies that collect and distribute economic data have infinitely more employees than you or I would ever hire if charged with the task of collecting the same data.  Only a small and noble percentage of government employees truly care about the far-reaching implications of their work.  A majority are punching a clock.  They couldn't care less if this first post-shutdown Retail Sales report is as accurate as it should be.  Beyond that, we can assume things will be tough/different enough to have some unknown impact on the quality of the data.

Because of all of the above, some traders are taking reports that come out in February with a grain of salt (among the shutdown-affected reports).  This is one of the reasons we keep discussing "mid-March" as a time frame for more decisive trading.  We'll have the Fed.  We'll have fiscal resolutions on several uncertainties.  And we'll have economic data firing on all cylinders.

Between now and then we have a consolidation range behaving logically, but one that's about to be broken for better or worse.  When that happens, we'd expect to see a generally sideways range prevail until mid-March, but big breakouts in data or big fiscal surprises could always make a case for an early move.  Is Retail Sales up to that task?  Probably not, but it's good to have the data back, nonetheless!