Good morning and as I stated in yesterday’s radio program, I have delayed this week’s report until today since the markets were closed yesterday and I wanted to give you a better view of what lies ahead. Of course, flying in from Rio de Janeiro yesterday early morning certainly doesn’t keep one motivated from doing anything but sleep when there is no money-making business to be done.
Once again, let’s review the highlights from last week, though I will not dwell as much as I did on the show. Last week we saw that the economy remains in recovery mode, though it is slowing down to nearly a snail’s pace. We saw that housing prices went up, but with the huge drop in demand that is occurring now that the tax credits are gone, those prices will likely reverse course. Inflation remains tame and likely will continue to do so for a while at least and the jobs market is far from looking good again. In general, the data continues to favor mortgage backed securities and lower mortgage rates and the week started off nice, then fizzled and leaves questioning exactly where they will go.
OK, enough of the past and let’s get down to looking into what lies ahead. We have spent just about every bit of data would could have last week, so this week is very light on data, just take a look…
- Monday: Markets were closed
- Tuesday: ISM Non-Manufacturing Index (10:00), 3-month T-Bill Auction (11:30), 6-month T-Bill Auction (11:30)
- Wednesday: MBA Purchase Applications (7:00), 4-week T-Bill Auction (11:30), Treasury STRIPS (3:00), Narayan Kocherlakota Speaks (3:30), Jeffrey Lacker Speaks (7:15)
- Thursday: Jobless Claims (8:30), 3-year T-Note Announcement (9:00), 10-year T-Note Announcement (9:00), 30-year T-Bond Announcement (9:00), Crude Inventories (10:30), 10-year TIPS Auction (1:00), Consumer Credit (3:00), Money Supply (4:30)
- Friday: Wholesale Trade (10:00)
As you can see, there is not going to be much data to make MBS prices move this week, though Fed speeches Wednesday and the Treasury Announcements on Thursday could make some waves. Most likely, however, is that MBS prices will move based on technical indications and on the latest headline news.
Unfortunately, the charts do not provide a clear picture as to where MSB prices will go this week as they show a lot of uncertainty in the traders’ actions such as the large Doji that formed on Friday after a Jobs Jamboree that should have helped them rally. Friday’s pattern covered a range of 63 basis points, including piercing the first layer of resistance and hitting the second, but also dropping down to the support of the 10-day moving average before closing just 5bp lower than their open. The good news is that is not overly surprising going into an extended holiday weekend. Stochastic indications are still in the overbought spectrum and pointing lower at this time on the sow side, but appear to be attempting a turn on the fast scale, though also still overbought. The moving averages continue their climbs across the board, but that also adds that the “rubber band” may not be able to get stretched much further. And indeed, even today we are not seeing any real strength, begging to question if they can rally further or are they going to hover here, or even pull back.
The bottom line this week is that it is another day-by-day game. The charts in general still lean in favor of lower mortgage rates, but the weakness being shown begs to question that it may be leveling off or even thinking of reversing course. As I mentioned on the show yesterday, I favor locking due to the uncertainty of the situation, but don’t forget to follow my daily reports on Florida Mortgage Daily to see if things change before next week.
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