Last Friday we said we didn’t expect much change in rates unless there was a distinct trend in the numerous reports coming out early this week.  Well, there is a definite trend.  The economic news headlines are good across the board and future inflation may be a factor.  In response, the bond market has taken it on the chin with 10 year treasury yields rising to 1.80%, the highest since May.  Mortgage rates have followed suit and 30 year fixed rate mortgages are sitting solidly at 3.75%. 

Here’s a quick look at all the reports.

The Producer Price Index, a measure of inflation, was up 0.3%, above the 0.2% that was expected and the core index (minus the volatile food and energy component) was up 0.4% above the expected 0.3%.  All this is bad for interest rates.  The other major report on inflation is the Consumer Price Index which came out Wednesday and was less than expected.  That should be good for interest rates but the combined affect seemed to be somewhat of a wash but since the inflation index increase is at the producer level not the consumer level, it does “predict” future inflation.  All-in-all, bad for interest rates.

Retail Sales for July came in up a much stronger than expected 0.8% when the consensus was 0.5%. Apparently ignored in this report was that June’s weak numbers were further reduced from down 0.2% to 0.4% and after a very weak June, there were a record number of sales going on.  The speculation is that the strong July numbers bode well for back to school shopping.  The converse may be that with the store sales and record heat of July, consumers were going to the air conditioned  indoor malls and doing their back to school shopping early.  We’ll see.  Good for the economy, bad for interest rates.

Industrial Production showed a stronger than expected improvement to 0.6% when the consensus was 0.5%.  The revision of June down from 0.4% to 0.1% was apparently ignored.  Coupled with that is that Capacity Utilization was up more than expected reflecting the slowing accumulation of inventories. While good news, we’re still adding to our inventory levels. Good for the economy, bad for interest rates.

Lastly, the Housing Market Index was better than expected increasing 2 points to 37 when the consensus was 35.  That reflects the fourth straight month of improvement and is the best level since 2007.  Good for the economy, bad for interest rates.

The end of the week has lots more reports but it is clear that the investors are bullish on the economy and the headlines far out weigh the details of the reports.

We’ll talk Friday.