FNMA 30-YR 3.5%

Previous close 97.660
Opened Up 0.06bp @ 07.719

Key Economic Data:

EUR / USD  1.3244  Down  0.0116
USD / JPY  83.8745  Up  0.2750
GBP / USD  1.5641  Down  0.0120

OIL    82.92  Down  0.94
Gold  1,354.50  Down  20.50

Key Economic News:

No news items today.

Advice:

Just hang on, next week we should see the market rebound.

I would float short term, float long term.

FNMA 30-YR 3.5%

Previous close 98.590
Opened Down 0.44bp @ 98.156

Key Economic Data:

EUR / USD  1.3373  Up  0.0005
USD / JPY  83.314  Up  0.1565
GBP / USD  1.5800  Down  0.0025

OIL    81.59  Up  0.34
Gold  1,377.70  Down  2.00

Key Economic News:

The Mortgage Banker Association’s index of mortgage applications is reported to have risen 2.1% in the week ended November 19. No other details available.

Cliams, Spending, Income All strong; Durable goods disappoint
Two strong reports, one weak one. Claims much better than expected all around, as initial, continuing, and emergency/extended claims all fall significantly. Income and spending data show firm gains on both sides with core prices flat on the month. However, durable goods orders post sharp declines in October, suggesting a hiccup in the strong trend of equipment spending; this decline is mitigated to a considerable degree by upward revisions (though not as much in the case of capital goods).

Key Numbers:
Durable goods orders -3.3% in Oct (mom) vs. median forecast +0.1%.
Personal income +0.5% in Oct (mom, +4.1% yoy) vs. median forecast +0.6%.
Personal Spending +0.4% in Oct (mom, +3.6% yoy) vs. median forecast +0.5%.
PCE core index +0.005% in Oct (mom, +0.9% yoy) vs. median forecast flat.
Initial claims -34k to 407k in week ended Nov 20 vs. median forecast 435k.
Continuing claims -142k to 4.182 million in week ended Nov 13 vs. median forecast 4.275 million.

10:00: Reuters/University of Michigan consumer sentiment for Nov (final)…slight uptick? The median forecast for this index is essentially on top of the preliminary reading, which is often how the final reading turns out. The median expectation for inflation five to ten years ahead was 2.8% in the preliminary report, the same as in October.
Medain forecast (of 64): 69.5, ranging from 68.4 to 71; last 69.3 (Nov prelim).

10:00: New home sales for Oct…a small increase? Sales of new homes have been fluctuating in an extremely low and relatively narrow range (282k-310k) since the homebuyer tax credit expired at the end of April.
Median forecast (of 72): +1.6%, ranging from -3.9% to +9.8%; last +6.6%.

10:00: FHFA housing price index for Sept…another decline? This index rose in August, but the trend has been gradually down since early 2008. Forecasts show no clear direction for September.
Median forecast (of 15): flat, ranging from -0.5% to +0.6%; last +0.4%.

Advice:

With the market closing early today. I wouldn’t take too much from today’s direction.

I would float short term, float long term.

FNMA 30-YR 3.5%

Previous close 98.500
Opened Up 0.35bp @ 98.844

Key Economic Data:

EUR / USD  1.3483  Down  0.0145
USD / JPY  83.035  Down  0.2963
GBP / USD  1.5904  Down  0.0053

OIL    81.13  Down  0.61
Gold  1,367.90  Up  10.10

Key Economic News:

GDP revision, existing home sales, Richmond Fed, FOMC minutes, and weekly confidence….

GDP Composition firmer than expected
Headline roughly in line, but composition stronger than expected, with upward revisions in most components of final sales and inventory investment modestly slower. No changes in key price indexes.

Key Numbers:
Real GDP growth from +2.0% to +2.5% in Q3 (qoq, annualized, +3.2% yoy) vs. median forecast 2.4%.
GDP price index unrevised at +2.3% in Q3 (qoq, annualized +1.2% yoy) vs. median forecast +2.3%.
Core PCE price index unrevised at 0.8% in Q3 (qoq, annualized, +1.3% yoy) vs. median forecast +0.8%.

10:00: Existing home sales for Oct…stabilizing? After the wild swings associated with the homebuyer tax credit, sales of existing homes appear to have stabilized in October at about a 4.5-million annual rate.
Median forecast (of 71): -1.1%, ranging from -15% to +3.8%; last +10.0%.

10:00: Richmond Fed manufacturing index for Nov…which way? This report follows two Fed surveys that have sent sharply conflicting messages about the lastest industrial conditions. The New York Fed’s Empire index plummeted, while the Philadelphia Fed’s business barometer surged. So the question is whether industrial conditions get better as we travel farther south. The handful of economists who forecast this are split on the answer to that question, with a very slight bias to the high side.
Median forecast (of 8): +6, ranging from  -1 to +10; last +5.

14:00: Minutes to the Nov 2-3 FOMC meeting…what range of views and alternatives? We will look for answers to three questions (1) How seriously did the committee discuss policies other than the large-scale asset prurchases (LSAPs) that were resumed at this meeting? (2) How serious and broadley shared were the concerns about the effects of LSAPs? (3) How much did the FOMC downgrade its formal quarterly forecasts, last published in late June? While various alternative modes of easing and/or broader ploicy frameworks (such as price-level targeting) may have been discussed, we don’t think they got serious consideration. On the second question, the minutes may reveal that several meeting participants raised concerns about the resumption of LSAPs. Finally, we expect a signiificant increase in the path of unemployment, quite probably with at least some increase in the longer-run “mandate-consistent” projection (5.0%-5.3% in June), a significant downgrade to growth in 2010 and some reduction in the 2011 range as well (3.5%-4.2% in June). Near-term inflation estimates are also apt to be revised down a couple tenths, but we don’t expect any change in the longer-run 1.7%-2.0% range.

17:00: ABC consumer comfort index…it’s been stuck between -47 and -45 for the past couple of months, most recently at -47.

Advcie:

I would float short term, float long term.

FNMA  30-YR 3.5%

Previous close 98.280
Opened Up 0.16bp @ 98.438

Key Economic Data:

EUR / USD  1.3645  Down  0.0028
USD / JPY  83.501  Down  0.0465
GBP / USD  1.5961  Down  0.0018

OIL    8002  Up  0.04
Gpld  1,353.00  Up  0.70

Key Economic News:

No News Items

Advice:

With no news items and a short week, I expect the markets to be very volatile this week.

I would float short term, float long term.

FNMA 30-YR 3.5%

Previous close 98.340
Opened Down 0.06bp @ 98.280

Key Economic Data:

EUR / USD  1.3670  Up  0.0027
USD / JPY  83.472  Down  0.0480
GBP / USD  1.5971  Down  0.0070

OIL    81.14  Down  0.71
Gold  1,343.00  Down  10.00

Key Economic News:

No News Items

Advice:

With no news items the markets are going to look abroad for help. The situation in China and Ireland should help. But as it’s a Friday we might see a sell off.

I would float short term, float long term.

FNMA 30-YR 3.5%

Previous close 98.440
Opened Down 0.16bp @ 98.281

Key Economic Data:

EUR / USD  1.3632  Up  0.0103
USD / JPY  83.300  Up  0.1200
GBP / USD  1.5992  Up  0.0085

OIL    81.66  Up  1.22
Gold  1,353.00  Up  16.10

Key Economic News:

A modest improving trend
Initial claims are broadly unchanged and thus do not reverse the previous week’s decline, pushing down further the four-week moving average to new cycle low. Claims for extended benefits increase slightly.

Key Numbers:
Inital cliams +2k to 438k in week ended Nov 13 vs. median forecast 441k.
Continuing claims -48k to 4.295 million in week ended Nov 6 vs. median forecast 4.295 million.

10:00: Philadelhia Fed business index for Nov…will it follow the Empire index? Earlier this week, the Empire index surprised sharply to the downside. with a big slump in the orders index. As a result, we suspect this report will likewise show a setback in manufacturing activity in the Philadelphia Federal Reserve District.
Median forcast (of 60): +5, ranging from -5 to +12; last +1.0.

10:00: Index of leading indicators for Oct…a solid gain. The main drivers this month should be the yield curve (+25bp), stock prices (+16bp and real M2 (+13bp) with most othe rcomponents either trivially positive or flat. The only decline comes from supplier deliveries (-8bp).
Median forecast (of 58): +0.5%, ranging from -0.5% to flat; last +0.4%.

10:00: Mortgage delinquencies and foreclosures for Q3…Last quarter the delinquency rate fell 21bp points from a record 10.06% to 9.85%, and the percentage of loans in foreclosure proceedings dipped 6bp, also from a record to 4.75%.

10:00: Federal Reserve Governor Elizabeth Duke testifies on “Foreclosure Documentation Issues”…to a subcommittee of the House Financial Services Committee.

16:30: Federal Reserve balance sheet…This report should start to show the balance sheet effects of the large-scale asset purchases (LSAPs), as it incorporates the first three operations under the new program. The total sales amounted to roughly $20bn, though some of this would include the reinvestment of repayments of principal on holdings of MBS and agency securities.

Advice:

We have a lot to take in today. Unemployment improved by being flat. Philadelphia Fed and Index of Leading Indicators could tip the scale either way. But I feel the economy has still a long way to go before we start to see real recovery.

I would float short term, float long term.

FNMA 30-YR 3.5%

Previous close 98.560
Opened Up 0.03bp @ 98.594

Key Economic Data:

EUR / USD  1.3503  Up  0.0014
USD / JPY  83.330  Up  0.0403
GBP / USD  1.5897  Up  0.0012

OIL    82.02  Down  0.32
Gold  1,339.00  Up  0.60

Key Economic News:

The Mortgage Bankers Association’s index of mortgage applications tumbled 14.4% last week. Although applications for refinancing led the decline (-16.5%), applications for purchase loans also fell 5%, reversing most of the preceding week’s increase.

Core Inflation hits new all-tine Low; Starts slump
Today’s reports underscore the reasons why the FOMC has decided to do large-scale asset purchases, as year-to-year core consumer inflation hit an all-time low (+0.6%) while housing activity continued to languish. The core CPI dipped slightly in October with many components contributing to the deceleration. While most of the larger-than-expected drop in housing starts was in multifamily units, which have less value-added per unit, starts of single-family units also dipped from a level that was revised down.

Key Numbers:
Consumer price index +0.23% in Oct (mom, +1.2% yoy) vs. median forecast +0.3%.
Core index -0.01% in Oct (mom, +0.6% yoy) vs. median forecast +0.1%.
Housing starts -11.1% in Oct (mom, -1.9% yoy) vs. median forecast -2%.
Permits +0.5% in Oct (mom, -4.5% yoy) vs. median forecast +3.9%.

Main Points:
1. CPI headline rises as expected (by 0.232%), due to a sizeable increase in energy prices (2.6%) while prices of food rose slightly (+0.1%). Core consumer prices, in contrast, are unchanged on the month (and actually down very slightly by -0.007%). While the rate of price inflation rises slightly in OER and transportation (to 0.1% and 1.2%, respectively), the remaining components of the CPI show broad-based disinflation: prices decline for apparel (-0.3%), recreation (-0.1%), education (-0.1%), and tobacco (-0.3%). The rate of inflation in medical care slows sharply (from 0.6% to 0.1%). As a result, the year-on-year core inflation rate falls to a new all-time low of 0.59% in October.

2. Housing starts fall more than ecpected in October. The decline in October was concentrated in starts of multifamily units (-43.5%), which have less value added per unit. Starts of single-family units edged down 1.1%. However, this was from a basis that was revised down 2.4%.

9:15: St. Louis Federal Reserve President James Bullard speaks on “Past, Present, and Future of the Government Sponsored Enterprises”…at the St. Louis Fed. A press briefing follows at 10:30, at which time Mr. Bullard is sure to get questions not only about this speech but about the controversy surrounding the FOMC’s decision to engage in large-scale asset purchases (LSAPs). He is currently a voting member of the FOMC.

Advice:

With today’s news I would expect the market to improve. Unless, Mr. Bullard upsets to apple cart.

I would float short term, float long term.

FNMA 30-YR 3.5%

Previous close 97.970
Opened Up 0.48bp @ 98.438

Key Economic Data:

EUR / USD  1.3603  Up  0.0016
USD / JPY  83.145  Up  0.0725
GBP / USD  1.6010  Down  0.0044

OIL  83.51  Down  1.35
Gold  1,355.80  Down  12.70

Key Economic News:

Data on producer prices, international capital flows, industrial production, builder sentiment, and one Fed speech. Also, throughout the morning CNBC will be airing portions of an interview with New York Fed President William Dudley…

Sharp drop in Vehicle prices offset most energy price surge
Prices of cars and trucks push down core producer prices; headline rises due to large increase in energy prices.

Key Numbers:
Producer price index +0.4% in Oct (mom, +4.3% yoy) vs. median forecast +0.8%.
Core PPI -0.6% in Oct (mom, +1.5% yoy) vs. median forecast +0.1%.

Main Points:
1. Headline producer prices increase by four tenth in October, due to higher energy prices (+3.7%). Core finished producer prices fall by 0.6%. This decline is completely explained by sharply lower prices of passenger cars (-3%) and trucks (-4.3%) which carry a combined weight of about 16% in the core index.

2. The core index of intermediate goods rose 0.6% in October, most likely reflecting the effect ot large increases in commodity prices on prices of goods part way through the production pipeline. However, in recent years changes in core intermediate prices have had only a subdued impact on final goods prices as companies have been unable to push cost increases forward.

9:00: TICS long-term inflows for Sept…
Median forecast (of 4): +$62.5bn, ranging from +$40bn to +$75bn; last +$128.7bn.

9:15: Industrial production and capacity utilization for Oct…a rebound? We expect a robust gain in industrial production following a somewhat surprising dip in September.
On production, median forecast (of 78): +0.3%, ranging from flat to +0.7%; last -0.2%.
On capacity utilization, median forecast (of 54): 74.9%, ranging from 74.7% to 75.4%; last 74.7%.

10:00: Housing market index for Nov…another tick up? Analysts look for a small additional gain after October’s 3-point increase. The index continues to languish in a low range, reflecting the effect of a large overhang of existing supply on sales and construction of new homes.
Median forecast (of 51): 17, ranging from 15 to 18; last 16.

17:00: ABC consumer comfort index…It’s been bouncing between -47 to -45 lately. last at -46.

19:15: Atlanta Fed President Dennis Lockhart speaks on the economy…at the Alabama World Affairs Council in Montomery. Lockhart has been supportive of the FOMC’s recent decision to buy long-term assets. He is not currently a voting member of the FOMC, his next turn comes in 2012.

Advice:
Again. I can’t see MBS pricing staying this low. I haven’t seen the economy rebound enough yet to justify this level. Yesterday’s sudden sell off at the end of the day, could have been as simple as just profit taking from the opens low start.

I would float short term, float long term.

FNMA 30-YR 3.5%

Previous close 99.190
Opened Down 0.66bp @ 98.531

Key Economic Data:

EUR / USD  1.3658  Down  0.0034
USD / JPY  82.775  Up  0.2495
GBP / USD  1.6124  Up  0.0010

OIL    85.31  Up  0.43
Gold  1,367.40  Up  1.90

Key Economic News:

Strong Retail sales; Empire declines sharply
Retail sales rise somewhat more than expected in October, mostly due to strong auto sales. Empire index declines sharply in November, as new  negative shipments collapse into territory.

Key Numbers:
Retail sales +1.2% in Oct (mom, +7.3% yoy) vs. median forecast +0.7%.
Sales ex autos +0.4% in Oct (mom, +6.0% yoy) vs. median forecast +0.4%.
Empire index -11.14 in Nov vs. median forecast 14.

Main Points:
1. Headline retail sales rose more sharply than expected in October, on the back of strong auto sales . Headline August and September headlines numbers were revised up (by 0.2 and 0.1 points, respectively). Consumer spending continues to look firm in Q4: the core component of retail sales that is used to calculate total consumption-sales excluding vehicles, building materials, and gasoline-is tracking at an annualized rate of just below 5% into the fourth quarter.

2. The Empire index fell sharply by 26 points to -11.14 in November. Most notably, the new orders index fell by more than 37 points to -24.38. Shipments also declined into negative territory (from 19.39 to -6.13). All other remaining indexes-except inventories-declined: the number of employees fell (by around 12 points to 9.09), the delivery time declined (from 6.67 to -9.09) and prices paid fell (from 30 to 22,08). The inventory index rose from -11.67 to 0.

10:00am  Business inventories for September. In general, inventory measures have showd an unsustainably high rate of growth in the late summer, partial data available for September invoentories are no different.

Advice:

Wow. I didn’t see that coming. I can’t see any reason for MBS pricing to stay this low. If you can, hang on as we should see pricing come back this week.

I would float short term, float long term.