Weekly Mortgage Market Update

"NOBODY LIKES THE BRINGER OF BAD NEWS." Ancient Greek playwright Sophocles. Last week may have been a holiday-shortened week as the Bond market was closed on Tuesday in honor of Veterans Day, but it was far from quiet as financial markets reacted to several pieces of bad economic news brought throughout the week.

The week began with the news that Circuit City filed for Chapter 11 Bankruptcy, and will be closing 150 stores - and this in advance of the holiday season, when most retailers make a larger portion of their profits for the year. Department store Nordstrom reported its growth rate is down 16%, where they were expecting an increase of 10%. Poor economic reports from Best Buy and Macy's followed a few days later, as well as lower future earnings guidance from Wal-Mart and Intel. As if the headlines of the week weren't enough, Friday's Retail Sales report showed that overall retail sales fell for the fourth straight month and plunged to their worst level since record keeping began in 1992. Looks like a pretty dismal holiday shopping season ahead...probably the worst that retailers will have seen in a long, long time.

In addition, there was bad news for the automobile industry as Deutsche Bank downgraded shares of General Motors from hold to sell, giving a price target of $0...yes, $0. As a result, General Motors stock fell below $3 for the first time since April 13, 1943. Interestingly enough, the automaker was not even making cars at that time but producing only military equipment for WWII.

And the bad news continued on the job front as well, as the Initial Jobless Claims report revealed the highest number of first time unemployment claim since 2001. In addition, Continuing Jobless Claims reached their highest level in 25 years. Remember, poor economic news and a weak labor market usually cause Bonds and home loan rates to improve. This is because fewer jobs and lower confidence about keeping or finding work causes people to spend less. In turn, businesses and retailers lose pricing power, and this is a cycle that keeps inflation - the arch enemy of Bonds and home loan rates - at low levels, especially if oil remains near present reasonable prices.

However, despite all the bad economic news of the week, Bonds and home loan rates were unable to make significant improvements this week as they fought to defeat and move convincingly above a very important technical level called the 200-Day Moving Average. Read on, to understand more about the significance of this technical indicator.

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There are several important economic reports ahead this week...is more bad economic news on the way? Tuesday and Wednesday will be big days on the inflation front as Tuesday brings the wholesale measuring Producer Price Index while Wednesday's Consumer Price Index (CPI) report will show us inflation at the consumer level - that is, how much more expensive goods and services are for consumers this month over last month, as well as year over year. Given the Fed's recent rate cuts (which can trigger inflation), it will be important to see what these reports show.

Wednesday will also bring a read on the new construction housing market with the Housing Starts and Building Permits Report, and Thursday is another important day to note as the Philadelphia Fed Report will be released. This monthly survey of manufacturing purchasing managers conducting business around the tri-state area of Pennsylvania, New Jersey, and Delaware is one of the most-watched manufacturing reports. Given both the poor Jobs and Retail Sales reports of late, this is likely to be somewhat negative as well. Weak economic news normally helps Bonds and home loan rates improve, as money flows out of Stocks and into Bonds, so I will be watching very closely for improvement during the coming week.

However, to gain improvement, Bonds would have to convincingly defeat and move above a technical level called the 200-Day Moving Average. A moving average is the average closing price of a financial instrument over a given time period. In this case, the 200-Day Moving Average can act as a "ceiling of resistance", preventing Bond pricing from moving higher and helping home loan rates improve, or a "floor of support" that can keep Bond prices from moving lower and causing home loan rates to worsen.

You can see in the chart below how Bonds danced around this level all last week, so I will be watching closely during the coming week to see if Bonds and home loan rates can breakthrough this resistance and move in an improving direction.

Economic Calendar for the Week of November 17 - November 21