- Retail Sales (RSAFS): +0.55% m/m; new all time high.
- Industrial Production (INDPRO): +0.05% m/m. Not expanding, down slightly from the highs.
- Fed Balance Sheet (WALCL): -13B (-0.17% w/w, -10.6% y/y). 22-month low.
- Total Bank Credit (TOTBKCR): +30B (+0.18% w/w, +0.06% y/y). Expansionary – and recovering.
- 10 Year Treasury Yield (DGS10): +20 bp (4.16%); strong move higher.
- 30 Year Mortgage Rates (MORTGAGE30US); -6 bp (6.60%); well below high of 7.79% in Oct 2023.
- Strategic Petroleum Reserve +596k (+0.18% w/w); slow refill again.
While industrial production is flat-to-falling, retail sales hit a new all time high. We are buying more stuff, but we aren’t making it ourselves – and there was a smaller (but more “real time”) report (the “Empire State Manufacturing Index”, released on Tuesday) which came in dramatically lower than expected (-44 actual vs -5 expected). This hints at bad industrial production for next month. At least bank credit is expanding again, so the deflation/bank collapse outcome appears to be off the table, at least for right now.
The 10-year rate rose 20 bp, a good-sized move. Related: TLT fell 2.5% on the week; long term bond funds fall when rates move higher. This is a hit to every pension fund and bank holding long-dated treasury bonds. This week’s move was enough to pull DGS10 back across all 3 moving averages, the weekly rate-uptrend is strengthening, and the candle print was quite bullish, but the 10-year yield is not back in a monthly uptrend just yet.
Here’s one driver of rising rates: the Fed’s balance sheet as a percentage of GDP. Fed holdings screamed higher back in 2008, and again in 2020 when the crisis-money-printing events took place. More recently, QT started in March, 2022 and the Fed has continued to unwind money printing to the present day – mostly by selling Treasury bonds.
But there is an interesting little burp in the pandemic money-printing event: the “official pandemic start” date was March 2020, but money printing started six months earlier. Event 201 was announced Aug 19, 2019, Fed money printing started September 6 (because banks weren’t lending in the Interbank market – so the Fed printed to cover the shortfall), and Event 201 was held on October 18, 2019.