Mel's Blog

Mortgage Bonds are trading lower in response to a better than expected Retail Sales Report.  April Retail Sales dropped 0.2%, matching expectations.  However, the drop was led by falling auto sales purchases.  When stripping out the auto sales, Retail Sales rose 0.5%, topping expectations of 0.2%.  This report tells us us that in spite of higher energy costs, the consumer continues to spend - at least for last month.  

Confirming the resilience in the Retail sector was Wal-Mart, who announced better than expected first-quarter results this morning.  But they went on to say that second quarter earnings may be lower than previously thought because of rising food and energy prices.  And eventually the rapid rise in both food and energy will take it's toll on the consumer.  Anyone who just filled their gas tank at the pump can relate to how much money is being spent in this area.

Late yesterday, Richmond Fed President Jeffrey "The Dissenter" Lacker said he is very concerned about a resurgence of inflation.  And Federal Reserve Bank of Cleveland President Sandra "Hard Rock" Pianalto also expressed inflationary concerns. 

Federal Reserve Chairman Big Ben Bernanke spoke this morning and said financial markets remain unsettled and the Central Bank will increase its auctions of cash to banks as needed.  He went on to say "while markets have improved, they remain far from normal and we stand ready to increase the size of the auctions if further warranted by financial developments''.

Technically, Japanese Candlestick patterns are often accurate indicators of turning points in the market.  Back on Friday, I expressed concern over the emergence of a Bearish Dark Cloud Cover Pattern after an uptrend and since then pricing has dropped 121bp.  Hopefully last Friday's and yesterday's Update, as well as the recent string of lock alerts, has protected you from this swift price erosion - but on brand new transactions, a carefully floating bias may be prudent.  Here's why - take a look at the Bond Chart, you can see a Rising Trend Line, which currently lies at $99.82.  The Bond bounced higher off this floor twice in the past 30 days and has done so thus far today.  The trend is usually your friend.