Morning Report - Retail Sales weak

Vital Statistics:

	Last	Change	Percent
S&P Futures	1684.9	-3.9	-0.23%
Eurostoxx Index	2858.6	-3.5	-0.12%
Oil (WTI)	107.6	-1.0	-0.89%
LIBOR	0.254	-0.001	-0.20%
US Dollar Index (DXY)	81.46	-0.030	-0.04%
10 Year Govt Bond Yield	2.88%	-0.03%
Current Coupon Ginnie Mae TBA	103.7	0.0
Current Coupon Fannie Mae TBA	102.6	0.1
RPX Composite Real Estate Index	200.7	-0.2
BankRate 30 Year Fixed Rate Mortgage	4.55

Markets are flattish on no real news. Bonds and MBS are up small. Liquidity should be light due to the Jewish holiday. Today is the last big data day before the FOMC meeting.

Mohammed El-Arian of PIMCO says the Fed is tapering to head off excessive risk taking. PIMCO is forecasting a "taper-lite" announcement of $10 billion in Treasuries, which would mean the Fed will continue to purchase MBS at its current rate. Given that foreigners have been net sellers of MBS and REITs have been de-leveraging (in other words, they have been net sellers too), it makes you wonder where the replacement for the Fed's buying will come from. What does that mean for your average mortgage banker? If TBAs are weak (bond prices falling), then mortgage rates will be higher. 

Twitter announced its IPO in 140 characters or less:  "We confidentially submitted an S-1 to the SEC for a planned IPO. This Tweet does not constitute an offer of any securities for sale." Note that roughly half of the characters are legal disclaimer. Some things never change.

The Producer Price Index came in flat ex food and energy, showing that there is no inflation at the wholesale level. Inflation has been figuring into the Fed's calculus for a while now, primarily on the downside. They desperately want to create a little inflation. 3% inflation and 3% wage growth feels a lot better to the average American than no inflation and no wage growth does. 

Retail sales came in lower than expected, .2% on the headline number, and the same for the control group. Looks like back-to-school sales were disappointing, which bodes ill for the holiday shopping season. Since consumption is roughly 70% of the US economy, it doesn't bode will for the 2H recovery we are supposed to be seeing according to Fed forecasts.

It will be Summers, at least according to the Nikkei newspaper. Supposedly this will be announced next week sometime. Summers would mean a quicker withdrawal of quantitative easing and a more vocal support of fiscal measures to stimulate the economy. The knives are out for Summers on the Left.