Advance Retail Sales higher as gasoline prices increase

Treasury prices are reversing yesterday’s gains as market participants turn bullish on equities since JPMorgan reported a higher than expected earnings per share of $1.28 versus the consensus of $1.15. JPMorgan’s 1Q2011 net income rose to $5.56 billion from the $4.83 billion reported in the previous quarter. These results are likely to dissipate, at least for today, on recent fears that banks will have a difficult time meeting EPS expectations for 1Q2011 due to a drop on bank loans and leases of $87.4 billion to $6.97 trillion for the first quarter of the year. Currently, the Dow Jones Industrial Average has gained 33 points to reach 12,297. Conversely, the 2-year note has dropped 1/32 to yield 0.76%. The 5-year note has lost 5/32 to yield 2.24% while the benchmark 10-year has declined 8/32 to yield 3.52%. Finally, the 30-year bond has dropped 13/32 to yield 4.60%.

On the economic front, the Advanced Retail Sales number was released with slightly lower than expected results. Advance Retail Sales is a measure of sales at retail establishments which does not include spending on services and sets the tone for personal consumption, a key component of Gross Domestic Product. The report indicated sales grew in March at 0.40%, the slowest pace since May of 2010. Analysts were expecting a 0.50% increase; meanwhile, the previous month’s data was upwardly revised by 0.10% to 1.10%. Examining the Less Auto or “core” number, we see a stronger than expected increase of 0.80% for the month versus the expected 0.50%. However, this increase was fueled primarily by a robust level of sales in Gas stations, which grew at a rate of 2.60% in March due to the increase in gasoline prices. Excluding sales at gas stations, retail sales only increased by 0.10%.

In other economic news, the Business Inventories Index was released at 9:00 am CDT at 0.50%, analysts expected this number to be 0.80% for the month of February. The previous month was upwardly revised to 1.00% from 0.90%. Business Inventories contain data from all three stages in the manufacturing process. This lower than expected reading can be viewed as positive as it indicates higher consumer demand, Finally, the Fed Beige Book, a summary of economic conditions over roughly the past six weeks in the 12 Federal Reserve Bank districts, will be released at 1:00 pm CDT. Although the report gives anecdotal information, market participants will be looking at how many districts report increasing concerns on inflationary pressures.