I hope everyone had a great Thanksgiving Day, and there was plenty to be thankful in the mortgage markets with the early Christmas gift from the Fed that sent mortgage backed securities higher and sent mortgage rates lower, kicking off increased inquiries for mortgages.  But was that all that happened last week? 

Certainly not, as we saw some more favorable data hit the airwaves and the breakout of the trading range virtually opens the door wide open for lower mortgage rates, avoiding those deadly piranhas I mentioned last week.  While the main event for the week was supposed to be the Personal Consumption Expenditures, or PCE, data, it was overwhelmed on Tuesday by the Fed’s announcement it was going to buy up mortgage backed securities. among other other things.  Since data had failed numerous times to send mortgage rates lower, mortgage bonds needed this announcement to break through the ceiling of resistance.

As the data flowed last week, we saw continued signs of our struggling economy, including a still weak housing market.  Consumer Confidence is down, though we can all be thankful that at least inflation is not going through the roof.  Yes, there is even talk of deflation these days and that may very well happen as this Christmas season is poised to bring plenty of red ink to retailers.  Indeed, Personal Spending was down despite Personal Income ticking slightly higher, but the PCE showed inflation in check, though the Core level is still a bit higher than what the Fed typically likes to see.

The question for now is just how high mortgage bonds can reach this time.  There are some cautions that remain, but I am also very optimistic as we will see more data flowing this week that could propel MBS to heights not seen since January, if not even higher.  They will certainly have a tough fight ahead of them, but the fire has been lit and the flames will likely be fueled further by data this week…

• Monday:  ISM Index (10:00)
• Tuesday:  No data
• Wednesday:  ADP Employment Index (8:15), Productivity (8:30), ISM Services Index (10:00), Beige Book (2:00)
• Thursday:  Initial Jobless Claims (8:30)
• Friday:  Non-farm Payrolls (8:30), Unemployment Rate (8:30), Average Work Week (8:30), Hourly Earnings (8:30)

See what I mean by data that can propel mortgage bonds?  The week starts off with another set of data that lets traders dwell on the gloominess of the economy and then it ends with the Jobs Jamboree, which will almost certainly see unemployment rise again.

Now for the cautions, which can be seen in the charts.  Stochastic indications remain in the overbought zone and are “flatlining”, meaning things may change soon.  Mortgage bonds will face several layers of resistance if they want to break to new heights, so the road ahead will be tough.  Resistance will be faced at September’s highs, followed by January’s.  The good news is that all moving averages are now below current pricing.

This week will be an interesting one to say the least.  What I am expecting is a pull back to occur at some point, maybe even back the highs of last month, followed by a resumption of price increases which hopefully will let us see mortgage rates even lower than what we have seen all year.