MBS prices are down on the day (FNMA 4.50 -3/32), but off of session lows. The stock market is in rally mode (Dow +111.93, S&P +13.56). Earnings continue to be strong. Intel and JP Morgan both easily topped expectations. The dollar index is at a 12 month low. These are all going to be bond-negative as strong earnings and a stock market rally imply economic stabilization/health and a weak dollar suggests inflation concerns. Import prices posted a 0.6% increase, while export prices were flat. These had little impact in bond prices. Retail Sales came in better than expected (-1.5% vs. -2.1% est.), but looked to be influenced by auto sales. Retails Sales, excluding auto purchases, came in worse than expected (-0.5% vs. +0.2 est.). Business Inventories gave some support to bond prices as the print came in worse than expected (-1.50% vs. -1.0% est.). The minutes from the Sept. FOMC meeting will be released at noon MT. Watch for the contents to be dissected by the media for signs of change in FED policy, stance, or outlook. Again, talk of an improving economy and/or mention of tapering off of their open market accommodations may press rates higher. If they look to be leaning more towards extending these programs and/or they are seeing a tougher road ahead than previously expected, rates may stay in check.
Tomorrow, Thursday, 10/15 has Consumer Price data on tap. CPI (est. +0.2%) and Core CPI (est. +0.1%) will be released at 6:30am MT. It wouldn't be Thursday without the weekly Jobless Claims data (est. 525k). We will also see the NY Empire State Index and the Philly FED. Consumer Price data should be watched for signs of accelerating inflation. Inflation is a piece of the puzzle that has yet to rear its head. There are expectations worldwide that inflation will become a problem as we recover from our current down-turn. If/when these concerns become reality, bond prices are likely to suffer as inflation is a key driver when the FED decides to raise (or not to raise) interest rates. A higher than expected CPI print may push rates higher, while a lower print will likely keep rates in check. The Indexes out of PA and NY should be watched as well. These indexes track manufacturing, prices, and employment in their respective regions. Any strong increases here may put upward pressure on rates. As always, watch that Jobless Claims number. It tends to make the headlines and move markets regardless of its volatile tendencies.
Will Staney
Sr. Mortgage Banker
WJ Bradley Mortgage Capital
12444 Research Blvd. Ste. 103
Austin, TX 78759
(512) 377-1468 Office
(512) 644-1587 Cell
(866) 953-0155 Fax
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