The Lake Team

Mon MMRecap for June 15

Treasuries sold for many reasons last week: concern about the never-ending supply of government debt coming to market; relatively good economic news that negated the need for safe-haven buying; rising oil prices that revive fear of inflation — which robs long-term bonds of their value, Russia’s announcement that it plans to reduce its share of U.S. Treasury holdings, and a lackluster response to 10-year note action.The surge in the 10-year yield has pushed mortgage rates up and reduced demand for refinancing, which presently represents the bulk of mortgage applications.The market-moving reports came in on Thursday beginning with May retail sales, which posted a gain for the first time in three months.  The 0.5% increase was due to auto sales and higher gas prices.  When auto sales were excluded, sales remained up 0.5%, but discretionary purchases of electronics, furniture, sporting goods and the like suffered.And first-time jobless claims for the week ended June 6 fell by 24,000 to 601,000.  The four-week moving average slid to 621,750.  But continued claims, those collecting benefits for more than one week hit the 6.8 million mark.Business inventories in April edged down to -1.1% from -1.3%, but were close to analysts’ estimates.  Earlier in the week it was reported that wholesale inventories for April dropped by a stronger-than-expected 1.4% — the lowest level since September 2007.  In a separate report, the U.S. trade deficit widened by 2.2% in March to $29.2 billion.The Fed’s Beige Book, released Wednesday, reported a sluggish economy in all 12 federal districts with weak manufacturing and poor sales of luxury goods dragging it down.  It also said credit remained tight in many districts, but eight of the 12 regions reported housing sales increases.A rise in consumer sentiment in June didn’t affect Treasuries, which were in rally mode early Friday.  The University of Michigan/Reuters preliminary survey showed confidence rose to 69 from 68.7 on hope that the recession end is near.Once again applications fell as mortgage rates rose.  For the week ended June 5 refis slid 11.8% while purchase apps rose 1.1%, according to the Mortgage Bankers Association.Analysts are expecting another batch of mostly positive news this week.  That’s good for the economy but will likely keep upward pressure on mortgage rates.  On Monday the NY Empire State manufacturing index for June is expected to come in at -2.1%, up from -4.55%.  Once it crosses 0% and heads into positive territory, the sector should begin to expand.  Thursday’s Philly Fed index is in a similar position.  It is expected to improve to -16.4% from -22.6%, but its journey to 0% is a lot longer.Housing starts and building permits for May are both predicted to increase.  Tuesday’s report should show building permits edging up to an annual rate of 500,000 from 498,000 in April, while starts could rise to an annual rate of 490,000 units from 458,000 — a big increase.The producer price index, which tracks wholesale price inflation, is expected to have risen 0.4% in May versus a 0.3% increase in April.  The core, which eliminates volatile food and energy prices, could rise 0.1%, the same as April.  May’s consumer price index could be equally encouraging.  Consumer prices are predicted to fall 0.9% versus a 0.7% decline in April, and the core rate should rise 0.1% — better than the previous 0.3% increase.Industrial production in May could hold at -0.5%, while capacity utilization is expected to creep down to 68.6% from 69.1% of production facilities in use.  One of Thursday’s last reports, leading economic indicators for May, could rise 0.9%, which is a tad lower than April’s 1.0% reading.  This report attempts to look at the nation’s economy six to nine months ahead.