Morning review

Greek 10 yr bonds are rallying for a 2nd day after German Chancellor Merkel said Greece will deal with their budget problems and that the Euro region won’t abandon them. The yield is down 9 bps and has fallen 25 bps in the past two days. This lift to European markets follows data in China which showed bank loans in Nov rose by 295b yuan, 45b more than expected. New loans now total 9.2t yuan in ’09 vs 4.9t in all of ’08. Chinese IP rose 19.2%, a touch better than expected but retail sales were a bit below forecasts. Exports unexpectedly fell but imports were higher. The China data is helping to lift copper prices for the first day in 7. The IEA raised its ’10 oil demand estimate led by China and India because of the “much stronger than expected oil demand growth in ’09 as a result of massive fiscal and monetary stimuli.”

Nov Retail Sales were better than expected, rising 1.3% headline and 1.2% m/o/m ex transports vs forecasts of a gain of .6% and .4%. Ex gasoline and auto sales, they rose .6%, .4% above estimates. The sales gains were broad based as clothing and furniture were the only main categories that were lower. While we did see comps last week from most retailers that told us that sales were so-so, the 1000 pound gorilla of WMT wasn’t included. With that said, today’s # includes just 25% of hard data with the rest estimated and we still have the key month of Dec in determining overall holiday sales. Nov Import Prices rose 1.7% m/o/m, the 4th month in a row of gains. Ex all fuels, prices rose .4% and are also up for a 4th month. Higher import prices are a key unintended consequence of a weak US$. The y/o/y gain of 3.7% was the first since Oct ’08 as the comparisons get easy. In response to today’s data, the 10 yr bond yield is rising to a one month high.

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