Morning Report - Disappointing Retail Sales

Vital Statistics:

	Last	Change	Percent
S&P Futures	1580.1	-7.6	-0.48%
Eurostoxx Index	2639.3	-35.0	-1.31%
Oil (WTI)	91.94	-1.6	-1.68%
LIBOR	0.278	0.001	0.18%
US Dollar Index (DXY)	82.45	0.202	0.25%
10 Year Govt Bond Yield	1.74%	-0.05%
Current Coupon Ginnie Mae TBA	105.7	0.3
Current Coupon Fannie Mae TBA	103.9	0.2
RPX Composite Real Estate Index	190.4	-0.4
BankRate 30 Year Fixed Rate Mortgage	3.57

Markets are lower after disappointing retail sales data. JP Morgan and Wells Fargo reported numbers that beat on the headline, but both are down. Bonds and MBS are rallying, with the 10-year yield back below 1.74%.

Retail sales dropped in March by .4%, the most in 9 months. February was revised down. Apparel, furniture and Home improvement retailers reported gains. Electronics stores reported decreases. Given the lousy jobs report last Friday, it isn't surprising that retail sales fell. Just crossing the tape:  Barclay's has taken down Q1 GDP estimates to 2.8% from 3.2% as a result.

Wells Fargo reported record Q4 earnings, with mortgage originations of $109 billion, down from $125 billion in Q4. MSR valuations were lowered as increasing real estate prices affect prepayment assumptions (Their average MSR note rate is 4.69%). The pipeline is $74 billion, down from $81 billion at the end of Q4.

The IMF is worrying that all of this easy money is going to inflate bubbles elsewhere. IMO, that train has already left the station. A commodity boom and easy money has created a real estate bubble in Canada that is even more expensive than ours was at the peak (median house price to median income ratio is above 5x, while ours peaked around 4.8x in 2006). We probably do have a bond bubble, however the Fed is running the show there and given that it is purchasing 70% of all Treasury issuance, can pretty much handle it has it pleases.