The May retail sales report was a good one, and the first strong numbers we’ve seen in many months.
The headline Retail Sales number rose exactly by the expected 1.2%. The more important sales ex-autos and gasoline rose by .7%, better than the expected .5%. There were also modest upward revisions to April’s numbers.
Riding On Rumors
The big rally in stocks on Wednesday was caused by a rumor that a meeting of the leaders of Greece, Germany, and France would result in a resolution on the Greek debit crisis possibly as early as that night.
Like most rumors this one wasn’t true, but traders did not give back gains in early trading on Thursday. The retail sales report also had no apparent impact on stocks. The major U.S. indexes were all up about a third of a percentage point in midday trading.
Meanwhile, bond yields closed Wednesday at the highest levels since September of last year. In the case of the 2-year note, it was the highest yield since 2011. Bond prices were modestly higher ahead of the retail sales report as the German 10-year bond yield dropped about 4 basis points from the close Wednesday night.
Bond prices have moved sharply higher since the retail sales report. The reason why bond prices are continuing to move higher of course has nothing at all to do with the retail sales report. The strong report should have pushed bond prices lower.
Bonds are rallying because the German 10-year note yield is continuing to fall in trading there. That yield was .94% and quickly moved to .89%. But the move Thursday in the U.S. market, justified or not, does set up one a positive situation for bonds from the perspective of our charthead friends.
So far at least the 10-year note has held at what chart traders view as a critical level. With the move Thursday morning, we could see more speculative traders pile into the market for a quick trade.
Chart traders have been burned several times this year searching for the big turnaround, but that never deters a hearty charthead. But make sure you’re reading the right chart. You should be watching the German 10-year note chart to see if its “critical level” is holding. The tail is wagging the dog.