Weakness In U.S. Retail Sales Not Slowing Markets

The unexpected weakness in US retail sales and industrial production reported before the weekend did not prevent U.S. yields and stocks from rising. Asia followed suit, and with Japanese markets closed, the MSCI Asia Pacific Index rallied a little more than 1%, the largest gain in two months. Of note, foreigners returned to the Korean stock market, buying about $260 mln today, which cuts the month’s liquidation in half. The Kospi rallied 1.3% today, the most in four months. European shares are moving higher as well in early Monday turnover. The Dow Jones Stoxx 600, which gained 1.4% last week is being bid through the ceiling near 382 to reach its best level in six weeks. European bonds are firm, with Spain and Italy yields are 4-5 bp lower, while core yields are off fractionally. US 10-year yields rebounded 15 bp last week to 2.20% and are holding near there now. The odds of a Fed hike in December increased last week and are just below 50%, depending on the model (assumptions). The US two-year yield rose 12 bp last week, the most in six months. The 10-year break-even (conventional minus the yield of the inflation protected security) starts the news week near 1.85%, the highest in four months, helped by last week’s CPI report. There is a supply issue too. Later this week, the U.S. will auction $11 bln 10-year TIPS. Read more at Nasdaq.