Holiday sales lower then expected

Wednesday, December 26, 2007

ECONOMIC DATA / NEWS

Although sales over the Thanksgiving weekend were better than anticipated, economists had warned that the res of the holiday shopping season may not maintain the strong pace.  Sure enough, Mastercard released data this morning estimating that retail sales rose 2.4% from the same period last year.  That is much lower than the 6.6% gain of a year ago.  The International Council of Shopping Centers reported that chain store sales were only up 2.8%.  Indications from individual stores are also disappointing.  Target lowered their profit estimate for the 4^th quarter following a slow holiday shopping period.  This news should drag the stock market lower, but it hasn’t moved any of that money into bonds yet.

Oil prices have risen to the mid-$94 level this morning.  There is concern that Turkish attacks on Kurds in Iraq could affect oil shipments from the region.  This will put a further damper on the weak retail period.  Many analysts believe that higher gas prices have been one of the roots of the consumer spending slowdown.  This would be very poor timing for another spike in gas prices when spending is expected to slow anyway following the holidays.

TECHNICAL ANALYSIS

FNMA prices dropped further out of the upward trend, and they also made their first real break from the 50-day moving average.  The FNMA 30-year 6.0% is down 6bp to 100.84.  It’s their lowest level in a month.  The next support level is the 100-day moving average, currently at 100.45.  The stochastics show strong downward momentum in mortgage bond prices, but more substantial losses could be avoided if the stock market takes on heavy losses.

The 10-year Treasury yield has climbed over 4.23%, and it is now experiencing support from the 50-day moving average.  That could be bad news, but prices also traded above the 50-day MA for a few days in October before the downward trend line knocked the yield lower.  The stochastics are also close to oversold territory, which is another sign that the yield could be topped out.

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