Where to begin where to begin....

The obvious observation is interest rates are higher today.  The directional move began yesterday after the Beige Book was released. Two points can be focused on.

Anecdotal evidence implies economic conditions continue to improve. Read these comments for more perspective....

"Overall economic activity continued to expand at a modest to moderate pace in January and early February"

"Retail sales increased in all Districts, except Richmond and Atlanta, although Boston, New York, Philadelphia, Atlanta, and Kansas City noted that severe snowstorms had a negative impact on merchant activity."

"Reports from eleven of the twelve Reserve Banks indicated that manufacturing activity improved since the previous report"

"Atlanta noticed that a higher percentage of contacts indicated that production levels would increase in the near term. Boston, Cleveland, Kansas City, and Dallas also described the manufacturing outlook as optimistic. Philadelphia, Atlanta, Chicago, Kansas City, and San Francisco reported more rapid improvement in factory orders. Chicago cited steel, automotive, and heavy equipment manufacturing as sources for significant new orders growth, while Dallas noted that orders for high-tech goods had accelerated."

"Districts reporting on nonfinancial services noted increased activity. Philadelphia, Richmond, Minneapolis, and Dallas observed rising demand for general professional business services, with several reports singling out accounting firms. Dallas noted that much of this rise in demand for accounting services was related to consulting and transactional work. Several Districts also cited increased demand for health care, insurance, and legal services. The New York District, while reporting that legal hiring had picked up a bit, observed that it was from very low levels."

"Several Districts described an increase in demand for staffing services, especially for high-skilled IT positions"

And producers are planning to pass along higher input prices to consumers. Who are allegedly willing to pay these higher prices....

"Non-wage input costs increased for manufacturers and retailers in most Districts. Manufacturers, in a number of Districts reported having greater ability to pass through higher input costs to customers."

 Plain and Simple: According to anecdotal feedback, the economy is improving at modest/moderate pace. Manufacturers are planning on passing higher input costs onto their customers!Both tidbits imply inflation is ahead. What does hawkish mean?

Add the findings of the Beige Book to strong anti-inflation rhetoric out of the ECB this morning and you've got yourself a reason to sell bonds.  SEE TRICHET MICROPOST

10yr contract money flows are positive and prices have deflated. Short sellers are having their way. The two-day interest rate sell off has served to stall positive momentum in the bond market. Trading technicals are now NEUTRAL.  Once again before a major econ event, the market is prepared to move in either direction. 

BEWARE.

What's at risk= loss of 4.875% "Best Execution" on C30 paper.

ps. notice I didn't provide a counter-argument to the inflation headlines. yet.