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Morning Notes For November 16th 2010




The following is a guest post by a buy-side analyst working in a US asset management firm. The author's comments are in italics. I welcome your feedback in the comments:

  • Retail sales rose 1.2% in October, a surprisingly strong result well in excess of the consensus 0.7% forecast. Consumer spending has surprised to the high side for three consecutive months Consumer spending will be revised up a tenth or two in the third quarter and is on course to be better in the fourth quarter.

    The pick-up in consumption is not enough to materially change the economic outlook; the economy is still growing too slowly to make a dent in the unemployment rate. But it is enough to keep the expansion alive despite an impending slowdown in inventory investment. – FTN Financial – somehow the chart below is making new all time highs. Other retail sales measures (total retail sales, total less food, total less autos, etc.) are close to previous highs, but not making new highs.

Total Retail Sales Less Autos and Gas Stations
total retail sales less autos and gas stations Nov 2010

  • Banks may agree to a settlement of the foreclosure issue worth ~$1 billion in the next month – Fox
  • California saw "decent demand" (but not overwhelming demand) on Monday as the state started to market a $10B municipal bond deal (the state sold about 44% of the $10 billion to retail investors in its first day). The real test will come though when CA tries to sell $2 billion worth of longer-term BABs. California will be selling ~$14 billion in total over the next two weeks. WSJ/FT – a lot of muni debt will hit the market before year end
  • Because of the nature of American business today, a weaker US dollar may not do much for exports and therefore may not stimulate the US economy all that much – NYT
  • Fed's dual mandate under attack – Mike Pence, chairman of the House Republican Conf, on Mon said he planned to introduce a bill that would end the Fed's dual mandate on unemployment and inflation and force it to concentrate solely on prices – FT – this is essentially how the ECB operates.
  • Treasury 30-year bond yields rose to the highest level since May as a report showed retail sales increased, a group urged the Federal Reserve to halt purchases of bonds because it may risk a surge in inflation, and Moody's critiqued a presidential commission's deficit-reduction plan. – Bloomberg

30 Year Treasury yields
30 year US treasury bond yields Nov 2010

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