Yesterday

- Bond markets consolidated, giving up some of recent rally

- Weakness was steady the entire day (see chart below)

- No significant data or events, just positioning for today

- MBS were 3/8ths weaker in Fannie 3.5

Today

- Busiest day of the week with important data and FOMC Minutes

- Retail Sales leads off at 8:30am and likely sets the tone for the morning

- FOMC Minutes at 2pm.  Always big potential, though not guaranteed

- Other Econ data and Fed speakers, but Retail Sales and FOMC are the biggies

Strategy

With the brief exception of Bernanke's speech at the start of the overnight session, yesterday's weakness was pervasive, moderate, and mechanical right from the start of yesterday's overnight session (see chart below).  Given yesterday's assessment that bonds had regained some sort of central ground and further gains would be harder fought, the consolidation isn't too troublesome even if it would have been nice to see the rally extend through that central territory.

Still, checking oneself before wrecking oneself is probably what bond markets had on their mind as today offers a host of big potential market movers.  There's plenty of data in the morning, but Retail Sales is the focal point during AM hours.  Existing Home Sales plays a supporting role at 10am. 

In thinking about the Consumer Price Index (CPI) that reports at 830am, keep in mind that no one cares about inflation right now (if you found yourself saying "no wait just a darn minute!  I care about inflation and so do markets!" that's fine.  I'm not saying it wouldn't be justified if it was an issue, but it's not).  I can't emphasize this enough... Inflation metrics used to matter very much, but they won't matter again until a shift is perceived, at that will take more than one instance of the Consumer Price Index.  Skip that and focus on Retail sales for all your 8:30am market-moving needs.

After Existing Home Sales, we'll be waiting for the 2pm release of the Minutes from the most recent FOMC Meeting.  Even more than FOMC Announcements themselves, the Minutes always reserve the right to catch markets off guard.  That said, they're also more likely than FOMC Announcements to flop (cause no meaningful reaction).  Today's iteration probably won't be one of the epic surprises--if for no other reason than market participants have obsessed over possibilities incessantly--but they're not likely to be an example of the "duds" either.

Charts

yesterday's steady weakness

Resistance to further gains in technical studies and even early warnings of a bounce higher in rate (close enough to be entirely dependent on today's data)

Token chart of Retail Sales and today's forecast.