MBS Pricing Snapshot

- Sentiment 76.8 vs 82.0 forecast
- current conditions 91.8 vs 94.8 forecast
- expectations 67.2 vs 74.0 forecast
- Sentiment lowest since April
- Expectations lowest since January
- Market Reaction: Treasuries and MBS rallying just barely to best levels of the day.

Survey director Richard Curtin attributed the decline to "growing concerns that higher interest rates will diminish the pace of economic growth as well as job gains." He added that a "cooling housing market has also affected homeowners' sense of personal financial progress."

Consumers were also apprehensive about fiscal policy and another potential battle in Washington over raising the government's legal borrowing limit, the survey showed.

Headline Sentiment 76.8 vs 82.0 forecast--lowest since April

Expectations Lowest Since January
MBS back near highs of the day. More to follow...

It's been a surprisingly straightforward overnight and early morning session so far despite the volatility. Little was happening during Asian hours until Japan's Nikkei newspaper published a story quoting inside, unnamed sources, saying that Obama would nominate Summers for Fed chief. This wasn't the garden variety op-ed, but a claim of inside info.

Stocks sold-off quickly on that news and bond yields rose (as Summers is generally regarded as less QE friendly than Yellen). Both spent the rest of the evening recovering back toward Thursday's latest levels. As domestic traders were sitting down, another newswire came out from Dow Jones saying Obama hasn't decided yet.

Bond markets rallied back to their best overnight levels on that news, and then rallied some more after a weaker-than-expected Retail Sales number (+.2 vs +.4 forecast). Offsetting the bond bullishness was the face that last month's sales were revised higher by a similar amount today's missed. Essentially, it's just not quite enough "bad news" to clearly suggest the Fed reconsiders whatever tapering timeline they're currently considering.

As such the rally hit the skids before dipping below 2.88 in 10yr yields and before Fannie 4.0 MBS broke above their highs from yesterday. Both are currently near unchanged levels, but Fannie 4.0s are doing slightly better--3 ticks up currently at 102-18. Consumer Sentiment rounds out the day's data at 9:55am.

- PPI Unchanged vs +0.1 forecast
- Annual Core PPI +1.1 vs +1.3 forecast
- Labor Dept says 2/3 of rise = energy costs
- Market Reaction: More interested in Retail Sales. This report is not hurting the case for bond markets, but probably not helping much.

The Producer Price Index for finished goods rose 0.3 percent in August, seasonally adjusted, the U.S. Bureau of Labor Statistics reported today. Prices for finished goods were unchanged in July and increased 0.8 percent in June. At the earlier stages of processing, prices received by producers of intermediate goods were unchanged in August, and the crude goods index fell 2.7 percent. On an unadjusted basis, prices for finished goods moved up 1.4 percent for the 12 months ended in August, the smallest advance since a 0.5-percent rise in April 2013.

- August Sales +0.2 vs +0.4 Forecast
- July Sales Revised to +0.4 from +0.2 Previously
- Reaction: Moderately weaker report, somewhat mitigated by the positive revision to last month's report. Given that PPI isn't a major market mover, it's the revisions to Retail Sales here that are likely the main hang up in a more concerted rally. Much like the Jobs report on 9/6, this is weaker, but not "weaker enough" to suggest a change in the taper timeline.

The U.S. Census Bureau announced today that advance estimates of U.S. retail and food services sales for August, adjusted for seasonal variation and holiday and trading-day differences, but not for price changes, were $426.6 billion, an increase of 0.2 percent (±0.5%)* from the previous month, and 4.7 percent (±0.7%) above August 2012.

Total sales for the June through August 2013 period were up 5.4 percent (±0.5%) from the same period a year ago. The June to July 2013 percent change was revised from +0.2 percent (±0.5%)* to +0.4 percent (±0.2%).

Retail trade sales were up 0.2 percent (±0.5%)* from July 2013 and 4.8 percent (±0.7%) above last year. Auto and other motor vehicle dealers were up 12.3 percent (±2.1%) from August 2012 and nonstore retailers were up 10.2 percent (±2.1%) from last year.