Morning report - disappointing retail sales

Vital Statistics:

	Last	Change	Percent
S&P Futures	2096.8	1.8	0.09%
Eurostoxx Index	3575.5	2.4	0.07%
Oil (WTI)	61.39	0.6	1.05%
LIBOR	0.277	-0.003	-1.16%
US Dollar Index (DXY)	93.97	-0.569	-0.60%
10 Year Govt Bond Yield	2.22%	-0.03%
Current Coupon Ginnie Mae TBA	102.1	0.2
Current Coupon Fannie Mae TBA	100.7	0.1
BankRate 30 Year Fixed Rate Mortgage	3.98

Markets are flattish this morning after a disappointing retail sales number. Bonds and MBS are up after European bond markets mount a small rally.

Retail Sales were flat in April after an upward-revised increase of 1.1% in March. While economists had hoped that consumers would spend their gasoline savings at the mall, they aren't - they are paying down debt. The control group number, which strips out some of the more volatile elements and is an input to GDP was flat as well. Expect strategists to start taking down Q2 GDP estimates and moving out their forecast for the first rate hike. 

Mortgage Applications fell 3.5% last week, which was unsurprising given the bond market sell off. Purchases were down .2%, while refis were down 5.9%. The 30 year fixed rate mortgage increased 7 basis points last week.

Who says the US cannot compete in low value-added manufacturing? It turns out we can, at least in energy-intensive manufacturing. Cheap natural gas in the US are offsetting the cheap labor costs overseas (which are rising) and manufacturing is returning. Case in point: plastics. It isn't just the cheaper electricity - it is the feedstocks that come from natural gas. This will do more to turn around our economy than anything will. 

Have the world's central bankers painted themselves into a monetary corner? Basically, the issue is that they don't have any more ammo since we are already at the zero bound. I would point out that interest rate cycles are very, very long and the US economy spent the 30s through the mid 50s with exceptionally low interest rates.