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US retail sales the key risk event on the day

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All ready for the main event later today?

The market is keeping steadier in general with equities little changed while Treasury yields are holding higher. 10-year yields are up 3 bps to 1.33% currently.

I would argue that bonds are still where all the action is at and that is the key consideration for any major move that will follow later in reaction to the US retail sales release.

Adam has a good preview on the report later today, with the emphasis being that the devil is in the details – as has been the importance with most releases as of late.

The thing with any of the solid releases as of late is that they tend to be faded soon after (talking about the bond market here). The reaction to the US inflation report earlier in the week is a good example of that.

The bid in bonds over the past two weeks has been unrelenting and while there is some comfort earlier in the week and now, the underlying momentum hasn’t vanquished.

You can pin it down to worries that the strength of the global rebound is waning or that there are growing concerns from virus mutations and supply chain disruptions. Or even just simple market talk that this is all down to liquidity.

But the chart paints a clear picture and that is yields are still under some pressure amid the series of lower lows and lower highs since June:

USGG10YR

The Fed still holds the cards in propping yields higher but it doesn’t look like a Jackson Hole pivot is coming and the market may be starting to realise that.

Powell’s latest speech this week has stressed on patience more than anything else.

As such, any outsized reaction in yields to the upside on a good retail sales report may not last but expect a poor report to trigger a sort of risk averse mood in the market.

That said, I would argue that dip buyers in equities can still see some bright side in that i.e. that the printing press will continue to run for longer. BRRRR!

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