Stocks and Mortgage Bonds are both higher this morning after some signs that the consumer may be stretched and spending less.
Retail Sales
Retails Sales for the month of January were reported at -0.8%, which was much worse than the -0.1% expected. Even when stripping out automobiles, sales were -0.6%.
Core Retail Sales were -0.4%, which is was also much worse than estimates of a 0.2% gain. Year over year, they are up 2.5%, which is the slowest pace since 2019 when you remove Covid.
We thought we would see the consumer spend less in January and we broke it down in Monday’s update titled Resilient Consumers Living it up Now…Paying Later. We discussed how the consumer has appeared strong, especially during holiday December, but speculated that they were spending above their means with new methods like buy now pay later. It appears consumers are having to start paying those debts back, which is slowing down their spending…at least for now.
Initial Jobless Claims
Initial Jobless Claims, which measures individuals filing for unemployment benefits for the first time, fell 8,000 to 212,000.
Continuing Claims, or those that continue to receive benefits after their initial claim, rose 30,000 to 1.895M. This figure is the second highest reading since November 2021 and shows that once people are laid off, they are having a harder time finding a job.
Industrial Production and Capacity Utilization
Industrial Production in January fell 0.1%, which was lower than the 0.3% expected. This is continuing to show weakness in manufacturing. Capacity utilization, or how maxed out capacity is at factories, fell from 78.7% to 78.5%, which is deflationary.
Weakness in Europe
Japan released their Q4 GDP figures, which were negative for the second quarter in a row. This historically would mean that Japan is in a recession. We also saw some weak estimates out of Europe, showing that we are seeing some global economic weakness.
The globe is interconnected, and recessions are often synchronized – We still may see recession like conditions here in the US this year.
Technical Analysis
Mortgage Bonds have broken back above their 200-day Moving Average and 100.427 Fibonacci level, which is a positive technical sign. After a wild week, Bonds are only 22bp below where they opened on Tuesday, the day we got the hotter inflation data, meaning they have gained back a lot of their losses. If Bonds can remain above these levels there is a lot of room to the upside before reaching the 25-day Moving Average – And if tomorrow’s PPI inflation data is favorable, it could be a good catalyst.
The 10-year has broken back beneath 4.25% and now has room to move lower until reaching the 200-day Moving Average at 4.13%. Begin the day floating.
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