Sean La Rue's Weekly Newsletter: Retail Sales Spring Forward

Last Week in Review "IF WE HAD NO WINTER...THE SPRING WOULD NOT BE SO PLEASANT." 17th-Century poet Anne Bradstreet's words ring true not only for the seasons, but also for last week's Retail Sales numbers. Just days before Sunday's "spring forward" into Daylight Savings Time, the retail sector looked to be unfreezing and showing at least a little spring in its step. As you can see in the chart below, Retail Sales for February were reported last Friday at 0.3%, which was better than the previous month's reading and much better than the -0.2% expected. Despite the good news, however, we need to keep in mind that it will be subject to future revisions - just like we saw in Friday's report, in which last month's decent 0.5% reading was revised sharply lower to just 0.1%.  ----------------------- Chart: Retail Sales (Month-Over-Month) The better-than-expected Retail Sales was good news for the economy, but it could also lead to inflation trouble ahead. Remember, inflation is the archenemy of Bonds. Just last week, fears of inflation in China pressured Bonds around the globe. And here in the US, a number of Fed members have already mentioned inflation as an increasing concern. And it isn't just Fed officials who have been warning against inflation; investors around the globe are having increased doubts. Massive debt and massive balance sheet expansion - combined with near zero interest rates for a long period of time - will no doubt conjure a recipe for inflation.  The question is this: Once inflation rears its ugly head...will the Fed have the courage and the will to kill the monster by tightening policy, amidst enormous political pressure not to do so?  As you'll see in the Forecast section below, the next Fed meeting is taking place this week, and the Policy Statement released on Tuesday will garner intense scrutiny. WHILE THE ECONOMY HAS BEEN SHOWING SOME SIGNS OF RECOVERY LATELY, MANY FOLKS STILL NEED HELP IMPROVING THEIR OWN FINANCIAL PICTURES. CHECK OUT THE MORTGAGE MARKET GUIDE VIEW ARTICLE BELOW FOR A VIDEO FEATURING FIVE WAYS TO GET OUT DEBT FASTER.

Forecast for the Week There's a lot of news on tap for this week, starting off right away Monday with the Empire State Index, Industrial Production and Capacity Utilization. These reports will give us a look at the manufacturing sector - and any bad news could certainly shake up the markets. We'll also see an update on the health of the new construction sector of the housing market, with reports on Building Permits and Housing Starts coming on Tuesday. Perhaps the biggest news of the week will be the inflation news carried in the Producer Price Index on Wednesday and the Consumer Price Index on Thursday. As stated above and in the chart below, hints of inflation fears have the potential to negatively impact the markets - and can quickly drive Bond prices lower and home loan rates higher. The news from these reports will be even more interesting, since they come just after the Fed's Monetary Policy and Fed Funds Rate decision on Tuesday...and many members of the Fed have lately been expressing their growing concerns about inflation. The Policy Statement following the Fed meeting is always dissected carefully - but with the rising fears of the inflation genie escaping the bottle, this Statement takes on even more significance. Remember: Overall, weak economic news normally causes money to flow out of Stocks and into Bonds, helping Bonds and home loan rates improve, while strong economic news normally has the opposite result. As you can see in the chart below, inflation fears pushed Mortgage Bonds below two key technical levels last week...and those levels now may become "ceilings of resistance" for Bonds, making it harder for them to improve. Chart: Fannie Mae 4.5%% Mortgage Bond (Mar 12, 2010)

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The Week's Economic Indicator Calendar Remember, as a general rule, weaker than expected economic data is good for rates, while positive data causes rates to rise. Economic Calendar for the Week of March 15 - March 19 Date ET Economic Report For Estimate Actual Prior Impact Mon. March 15 08:30 Empire State Index Mar 23.45   24.91 Moderate Mon. March 15 09:15 Capacity Utilization Feb 72.3%   72.6% Moderate Mon. March 15 09:15 Industrial Production Feb 0.0%   0.9% Moderate Tue. March 16 08:30 Building Permits Feb 602K   622K Moderate Tue. March 16 08:30 Housing Starts Feb 570K   591K Moderate Tue. March 16 02:15 FOMC Meeting   .25%   .25% HIGH Wed. March 17 10:30 Crude Inventories 3/13 NA   1.43M Moderate Wed. March 17 08:30 Producer Price Index (PPI) Feb -0.2%   1.4% Moderate Wed. March 17 08:30 Core Producer Price Index (PPI) Feb 0.1%   0.3% Moderate Thu. March 18 08:30 Core Consumer Price Index (CPI) Feb 0.1%   0.2% HIGH Thu. March 18 08:15 Consumer Price Index (CPI) Feb 0.1%   0.2% Moderate Thu. March 18 08:30 Jobless Claims (Initial) 3/13 450K   462K Moderate Thu. March 18 10:00 Index of Leading Econ Ind (LEI) Feb 0.2%   0.3% Low Thu. March 18 10:00 Philadelphia Fed Index Mar 18.0   17.6 HIGH

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