"IF WE HAD NO WINTER...THE SPRING WOULD NOT BE SO PLEASANT." 17th-Century poet Anne Bradstreet's words ring true not only for the seasons, but also for last week's Retail Sales numbers. Just days before Sunday's "spring forward" into Daylight Savings Time, the retail sector looked to be unfreezing and showing at least a little spring in its step.

As you can see in the chart below, Retail Sales for February were reported last Friday at 0.3%, which was better than the previous month's reading and much better than the -0.2% expected. Despite the good news, however, we need to keep in mind that it will be subject to future revisions - just like we saw in Friday's report, in which last month's decent 0.5% reading was revised sharply lower to just 0.1%. 

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Chart: Retail Sales (Month-Over-Month)

The better-than-expected Retail Sales was good news for the economy, but it could also lead to inflation trouble ahead. Remember, inflation is the archenemy of Bonds. Just last week, fears of inflation in China pressured Bonds around the globe. And here in the US, a number of Fed members have already mentioned inflation as an increasing concern.

And it isn't just Fed officials who have been warning against inflation; investors around the globe are having increased doubts. Massive debt and massive balance sheet expansion - combined with near zero interest rates for a long period of time - will no doubt conjure a recipe for inflation. 

The question is this: Once inflation rears its ugly head...will the Fed have the courage and the will to kill the monster by tightening policy, amidst enormous political pressure not to do so?  As you'll see in the Forecast section below, the next Fed meeting is taking place this week, and the Policy Statement released on Tuesday will garner intense scrutiny.

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There's a lot of news on tap for this week, starting off right away Monday with the Empire State Index, Industrial Production and Capacity Utilization. These reports will give us a look at the manufacturing sector - and any bad news could certainly shake up the markets.

We'll also see an update on the health of the new construction sector of the housing market, with reports on Building Permits and Housing Starts coming on Tuesday.

Perhaps the biggest news of the week will be the inflation news carried in the Producer Price Index on Wednesday and the Consumer Price Index on Thursday. As stated above and in the chart below, hints of inflation fears have the potential to negatively impact the markets - and can quickly drive Bond prices lower and home loan rates higher. The news from these reports will be even more interesting, since they come just after the Fed's Monetary Policy and Fed Funds Rate decision on Tuesday...and many members of the Fed have lately been expressing their growing concerns about inflation. The Policy Statement following the Fed meeting is always dissected carefully - but with the rising fears of the inflation genie escaping the bottle, this Statement takes on even more significance.

Remember: Overall, weak economic news normally causes money to flow out of Stocks and into Bonds, helping Bonds and home loan rates improve, while strong economic news normally has the opposite result.

As you can see in the chart below, inflation fears pushed Mortgage Bonds below two key technical levels last week...and those levels now may become "ceilings of resistance" for Bonds, making it harder for them to improve.

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Economic Calendar for the Week of March 15 - March 19