Stocks are once again set to open higher after Intel beat estimates with sales jumping by more than a third in the second quarter. The computer chip producer saw net income of $2.9 billion in the quarter versus a $398 million loss in the same period one year ago, according to Reuters.

Stocks have already rallied around 7% over the past five days, including 676 point advance for the Dow Jones Industrial Average. Ninety minutes before the opening bell, Dow futures are 33 points higher at 10,087.75 and S&P 500 futures are up 2.25 points to 1,092.00. S&Ps hit 1099.00 in the overnight session.

Meanwhile, Treasuries seem to in a holding pattern ahead of a busy day of data and events. The 2-year Treasury note is +0-01 at 99-30 yielding 0.657% (1.2bps) and the benchmark 10-year note is +0-02 at 103-08 yielding 3.115% (-0.7bps).

Rate sheet influential mortgage-backed securities have performed well as the investing environment shifts in favor riskier assets and benchmark yields have backed up. The August Fannie Mae 4.0 coupon went out -0-08 at 100-30 and the Fannie Mae 4.5 closed -0-05 at 103-12. The secondary market current coupon rose 3.3 bps to 3.874%. While this may not seem like a strong performance, MBS yields have outperformed their duration adjusted hedges. Yield spreads went out slightly tighter yesterday. Here are MND's marks: +75bps/10yr TSY yield and +70.9 the 10yr interest rate swap.

The August Fannie Mae 4.0 MBS coupon is currently +0-05 at 101-03 and the Fannie Mae 4.5 is +0-04 at 103-16. The secondary market current coupon is 2.1bps lower at 3.853% and yield spreads are UNCH vs. benchmarks.

Key Events Today:

8:30 ― Retail Sales, the biggest macroeconomic data entry of the week, is expected to upset markets with a 0.2% overall decline in June. Once stripped of auto data, markets are expecting sales to be flat. Those figures are modest relative to the 1.2% downward surprise recorded for May, which economists had guessed would be +0.4%. Sales were, however, 6.9% up from one year ago, indicating that a recovery is still underway.

“Retail sales are expected to slow in June for the second time following seven months of growth,” said economists at BBVA. “Auto sales will be the primary driver due to the 4.8% drop in vehicles sold. Nevertheless, retail sales excluding autos will not exhibit much change. Consumer confidence declined in June and the weakness in non-farm payrolls will likely result in lower personal income.” 

They further wrote that a quicker recovery in sales is dependent on the labor market, which has proved sluggish. 

Economists at IHS Global Insight are pessimistic, predicting a 0.8% drop in the month, including a 0.5% drop in the ex-autos category.

“Sales at building materials stores are likely to decline again as the energy-efficient appliance incentives wind down, while gasoline station sales should decline on lower gasoline prices,” they wrote. “In other outlets, sales probably edged higher based on the tepid readings from chain stores. We expect sales to pick up again in the third quarter, but consumer spending has lost momentum after three strong months from February through April.”

10:00 ― Business Inventories rose 0.4% in April with manufacturing inventories climbing 0.5%, wholesale inventories gaining 0.4%, and retail inventories edging up 0.2%. Consensus forecasts were not available for May, but other indicators suggest business confidence for the broader recovery fell in the month.

“Inventories in the private sector are likely to have decreased by 0.4% in May primarily because of soft commodity prices,” said analysts at Nomura Global Economics. “In addition, private firms slowed the product-stocking process in line with disappointing sales numbers. Both factory shipment and retail sales were down more than a full percentage point month-on-month.”

2:00 ― The FOMC Minutes from the Federal Reserve’s June 22-23 monetary policy meeting will be closely watched. The statement from that meeting was perceived as giving a more cautious outlook on growth and inflation ― recovery was merely “proceeding,” the housing market was “depressed,” labor markets were only “improving gradually,” and Kansas City Fed president Thomas Hoenig dissented for the fourth consecutive meeting.

In looking for further commentary on those significant changes, economists at Deutsche Bank said these minutes are the main event of the week.

“Coupled with the incrementally negative statements on housing and employment, we will be looking for any further signs of concern around European sovereign debt issues spilling over into the US economy,” they wrote. “As we have written previously, US exports to the euro area are about 1% of GDP, so we do not see as imminent a threat to the current recovery as policymakers appeared to have perceived at the June meeting. Nonetheless, it is clear that monetary policymakers will err on the side of caution, keeping in place extreme accommodation until confidence has been regained in the European banking sector.”

Deutsche Bank also said it’s possible the Fed could begin discussing further quantitative easing measures.

“With short-term interest rates near zero, and with the balance sheet nearly three times its size prior to the Lehman bankruptcy, the Fed has few options left for further monetary stimulus,” they noted. “Hence, any downside risks to growth would likely be met through a commitment to keep current policy accommodation in place for an extended period.”

This was MND's initial reaction to the release of the June FOMC Statement:

"The subtle alterations made to the statement were skewed to the bearish side of the BIG PICTURE storyline. This includes a reference of weakness abroad and definite dovish tone on inflation ("underlying inflation has trended lower" = deflationary concerns).  Overall, the Fed didn't offer up any surprises.  They did remove a portion of the text that said housing starts had picked up but they left the verbiage "remain at depressed levels" in tact. There was no change in the "low rates for an extended period" phrase and resource slack continues to prevent producers from passing along higher costs to consumers. MORE COLOR AND MARKET REACTION

Treasury Auctions:

• 1:00 ― 30-Year Bonds