Current position: Carefully Floating
Stocks and mortgage bonds are both lower to start the day, but bonds are well off their worst levels after testing an important floor of support.
Treasury Supply Problem
Banks are seeing deposits flee, and they have to raise capital, but the stock market is not helping them. To come up with the money, they are having to sell assets like the 10-year Treasury notes they hold. This is adding more supply to the market. We believe this will be a short-term issue, but it is a reason why we are not seeing the bond market improve despite lower inflation.
Retail Sales
Retail Sales for the month of April rose 0.4%, which was half of market estimates. Sales increased 0.5% over the last year, the lowest growth rate in three years and well below the historical average of 4.8%. After adjusting for inflation, though, the story is far worse. Real retail sales fell 4.2% over the last year, the 6th consecutive YoY decline.
However, Core Retail Sales, which strip out automobiles, gasoline, building materials, and food services, rebounded 0.7% last month, which was well above the 0.4% expected. There were negative revisions to the previous two months, however, tempering this gain. March Core Retail Sales were revised lower by 0.1%, and February was revised lower by 0.5%. Core Retail Sales are important, as they are imputed into GDP. The jump in Core Sales added some pressure to the bond market, but bonds have gained back some of the losses as the market digests some of the revisions.
NY Fed
The NY Fed released their Household debt and Credit report, showing that delinquencies moved higher in Q1 and will probably get worse in Q2. This is not a good sign for the economy and typically precedes a downturn or recession.
The amount of outstanding credit card debt is now nearing $1 trillion.Make sure to use debt consolidation strategies, like we have discussed in previous updates. One of our customers shared this testimonial, showing the success they have had:
"I recently helped a customer do some debt consolidation. With his new loan rate of 7%, he lowered his total monthly payments by $2,964 per month."
CoreLogic Rental Report
CoreLogic reported that rents rose 4.3% year over year in March, which is down from 5% in the previous report, showing that rents continue to decelerate on a year over year basis. This is the 11th month in a row of year-over-year deceleration, which will help inflation in the coming months as it catches up.
Cass Freight
The April Cass Freight index fell 1.3% last month and 2.4% year over year. Cass Freight said, "The freight markets remain muted and continue to work through an extended soft patch ".
The inferred rate, which factors in the cost per shipment, fell 4% last month and 11.9% year over year. Cass Freight said that fuel prices are transitioning from an inflationary factor to a deflationary one as we pass the anniversary of the fuel price spikes that followed Russia's invasion of Ukraine last year. They estimate that lower fuel prices will knock about 5% off freight rates annually starting in mid-Q2. This speaks to lower inflation, which coincides with our forecasts for inflation in the next two months.
Technical Analysis
Mortgage bonds tested support at the important 100.281 floor, which has been holding and helped bonds recover most of their earlier losses. Bonds have several ceilings of resistance overhead, starting with the 50-day moving average.
The 10-year is once again testing its 200-day moving average, which is keeping a lid on yields for now. This is a strong ceiling and should provide ample resistance to prevent them from continuing higher. Begin the day carefully floating.
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