Treasuries and mortgages opened weaker this morning on stronger stock indexes in the US and Europe. At 8:30 Sept retail sales were better than expected, up 1.1% overall and up 0.9% when auto sales are extracted, both better than forecasts. August retail sales were revised to +1.2% frm +0.9%. Also at 8:30 the Oct NY Empire State manufacturing index frm the NY Fed, a little better at -6.16 frm -10.4 in Sept. The new orders component -9 frm -14 in Sept; employment fell to -1.1, the lowest this year and frm +4.3 in Sept. In early trading the 10 yr note rate at 1.68% up 2 bp frm Friday while 30 yr mortgage prices at 9:00 were -4 bp frm Friday's close and so far successfully holding at its 20 day average.

Fedspeak this afternoon; 12:45 Jeffery Lacker, at 1:10 James Bullard. Unlikely anything new, Lacker has been opposed to most of the Feds' recent easing and policy statements while Bullard seems to ride the fence with differing views as the situation changes.

There are a number of key economic releases this week that may cause an increase in volatility in US financials pending how the data is reported. The US stock market took a big hit last week with the DJIA down about 280 points, early this morning the index traded better along with Europe's markets better. The key indexes were better prior to the 8:30 economic data but didn't add to the gains on the stronger retail sales but the Empire data was a negative with employment the lowest reading this year. Still look like equity markets are struggling.

Spanish 10-year bond yield rose eight basis points to 5.71% and the equivalent Italian yield was five basis points lower at 4.94%. A report from China showed inflation in the world's second-biggest economy was close to the slowest pace in two years last month. Consumer prices rose 1.9% from a year earlier, while the producer-price index fell 3.6%.

At 9:30 the DJIA opened +26, NASDAQ +10, S&P +2. The 10 yr and MBSs recovered from early low prices on strong retail sales; at 9:30 the 10 yr unchanged at 1.66% after increasing to 1.68% earlier/ 30 yr MBSs were down 12 bp on 8:30 data but by 9:30 back to unchanged frm Friday.

At 10:00 August business inventories were up 0.6%; estimates were for an increase of 0.5%. No reaction to the report.

Later this week the EU will hold another of its summit meetings; not sure what if anything will be accomplished as the region continues to push on the string with endless meetings and comments that still haven't taken the region back from the cliff. That said however, interest rates in Greece, Spain and Italy have been falling recently suggesting there is progress being made.

Tomorrow another Presidential debate. After the first one markets will likely take notice as the polls appear to be about even.

By 10:00 this morning, after opening better the key indexes are now well off their earlier high at 9:30 open. If the indexes turn negative look for MBS and treasury prices to improve.

The rate markets continue to hold minor positive technicals; MBSs holding at their 20 day moving average while the 10 yr note hangs precariously below its 20 and 40 day averages but so far hasn't been able to move away from them. Still good but it wouldn't take a lot to turn the bond market back to less optimistic outlook.