After a slow start to the week, the data calendar heated up on Friday with the release of both Retail Sales and CPI for April. Retail sales rose by .4%, coming in below market expectations of a .6% increase. Ex-autos, sales were up by .3%, below the expected .5% rise. If we look at the Control Group, which feeds into the GDP calculation, we see a decline from a revised .7% to now only .2%. The data suggests some gain in Q1 growth, but overall, looks like a softer start to Q2.
In other news, the consumer price index (CPI) rose by .2% after a previous -.3% decline. The number on Friday was right in-line with what markets expected. If we strip out food and energy, the core rose at .1%, below the .2% consensus. On a whole, the year-over-year print of 1.9% is now below the prior 2% mark, as well as below the Fed’s 2% target. A BLS spokesperson noted that many components are still weak, and says the "annual inflation rate is decelerating." With that said, the inflation data should not necessarily prompt the Fed to hike rates again, unless the data ahead shows significant gains.
After the weak data hit the tape on Friday, we saw a nice rally in the interest rate space as Treasury yields once again fell to lower levels. The 10yr has traded the higher end of our recent trading range around 2.40% for the better part of the week, only now to post some marks in the lower 2.30 handle. Technicals were hinting at a double bottom which usually suggests a breakout/reversal in the other direction. As of now, we would need to see a stronger close below the 2.32% level for a Bullish trend shift to be in play. With a rally in mortgage pricing of about .25 of a point on Friday, it’s a nice gift and we suggest you take advantage of it.
