April 14. Retail Sales…the report 6 months ago in October was a doozy
–It was a quiet day on Monday in interest rates. Towards the end of day treasury prices firmed to the highs as the possibility of default by Greece begins to look likely.
–Retail Sales today, expected +1.1% with Core +0.6. PPR expected +0.2 with Core +0.1. Six months ago, the Retail Sales report was released on October 15, the day that yields crashed with Jamie Dimon recently referring to the event as a six or seven standard deviation move. Colleague John Brady posted a speech yesterday given by the NY Fed’s Simon Potter that discusses this day’s move in the context of high frequency trading, regulation, and liquidity…
http://www.newyorkfed.org/newsevents/speeches/2015/pot150413.html
Is it ironic that this crazy session, which featured 50 bp moves in greens and blues, was on the retail sales release, and that Potter spoke about it right in front of today’s data?
–There are a couple of other large, long term issues that are occurring as well. First, there is a report by the NACM Credit Mgrs Index (summarized on ZH, http://www.zerohedge.com/news/2015-04-13/unseen-recession-shocker-crushing-economy-revealed-credit-rejections-soar-most-ever ) which notes a severe decline in credit conditions. “According to the CMI, the Rejections of Credit Applications just crashed the most ever, surpassing even the credit crunch at the peak of the Lehman crisis.” I looked at the last Fed Sr Loan Officer Survey from January which noted generally stable conditions, but had this little warning at the end: “…modest net fractions of domestic and foreign banks indicated that they expected the credit performance of syndicated leveraged loans to deteriorate this year, and about one-third of the banks that originate subprime auto loans expected delinquency and charge-off rates to increase in 2015.” The issue of credit quality is certain to become a hot topic for the rest of the year, as Corp Debt is at record levels and the amount of “covenant lite” issuance soars as a % of total.
–The other issue along the same lines is the spin off of GE Capital and the desire to lose the SIFI (Systemically Important Financial Institution) designation. GE Cap is a huge issuer of debt (accounts for 2% of all outstanding IG debt) and according to a piece in ZH will not issue long term paper for five years. If it was a SIFI and is now curtailing its operations, it should have a further negative impact on credit conditions and availability…More on this later
