This week, several reports will show us whether or not inflation is getting hotter. Thursday’s Consumer Price Index (CPI) report will show us inflation at the consumer level – that is, how much more expensive goods and services are for consumers this month over last month. If CPI shows that inflation is growing, Bonds and home loan rates may reverse course and worsen quickly.
But before the inflation news hit the wires, another market mover will likely be Wednesday’s Retail Sales Report, which will show us the total receipts of retail stores. Changes in these numbers are closely followed as a timely indicator of broad consumer spending patterns. This month’s report may show us if spending that had been aided by the Economic Stimulus Package has started to wane. Remember: A strong Retail Sales Report would be good for the Stock market – which stands to reason, as it would indicate continued consumer confidence and dollars being poured into the economy. But a strong Retail Sales Report would be bad news for Bonds and home loan rates, as money that pours over into an improving Stock market would be coming out of Bonds, and would in turn cause home loan rates to worsen.
Remember when Bond prices move higher, home loan rates move lower…and vice versa. Bonds ended the week on a positive note, but are now facing a “ceiling of resistance” overhead that might shut down any further improvement. Like an Olympian faced with a barrier, Bonds will need a boost to break through a tough ceiling that has halted advances on five occasions in the past few weeks. The nature of the reports will determine whether Bonds and home loan rates can make more improvements, or reverse from the overhead ceiling and worsen.
