Wow, at the beginning of last week, I was in Busch Gardens (Tampa) and decided to try the rollercoaster named Sheikra.  The cool part of that ride is it takes you up to 200 feet, then let’s you hang on the edge for a few seconds before letting you freefall all the way down as the ride truly begins.  Well, mortgage backed securities had their own rollercoaster  ride similar to Sheikra, namely that they inched their way on the edge, then went freefalling over 200 basis points on Wednesday alone and then truly began the ride.

A lot of things happened last week, and most if had nothing to do with data.  A flood of Treasuries began to hit the markets and the fear of higher inflation, dollar debasement, and the loss of the prestigious AAA credit rating the US carries, all unleashed a fury of selling that even the Fed was left wondering what happened.  If you want to know more, I have detailed my market analysis and why the “Mortgage Rate Bubble” may have just popped, which are in this post and this one, the latter having been posted over a week ago.

Seeing as the “dead cat bounce” appears to be ending already (around a 50% retracement), let’s get right into what lies ahead.  Here is the data slated to be released, some of which is already killing the markets, namely the PCE which was higher than expected at the Core level and that was before the recent run up in energy prices, so the next one will be even worse.

• Monday:  Personal Consumption Expenditures Index (PCE – 8:30), Personal Income (8:30), Personal Spending (8:30), ISM Manufacturing Index (10:00), 3-month T-Bill Auction (1:00), 6-month T-Bill Auction (1:00), Timothy Giethner Speech (9:15)
• Tuesday:  Pending Home Sales Index (10:00), 4-week T-Bill Auction (1:00), 52-week T-Bill Auction (1:00)
• Wednesday:  MBA Purchase Applications (7:00), ADP Employment Report (8:15), Ben Bernanke Speech (10:00), ISM Services Index (10:00), Crude Inventories (10:30), Thomas Hoenig Speech (2:30)
• Thursday:  Sandra Pianalto Speech (7:50), William Dudley Speech (8:00), Jobless Claims (8:30), Productivity and Costs (8:30), Ben Bernanke Speech (8:45), Treasury Announcements (9:00 and 11:00), Treasury STRIPS (3:00), Money Supply (4:30)
• Friday:  Nonfarm Payrolls (8:30), Unemployment Rate (8:30), Average Work Week (8:30), Hourly Earnings (8:30), Donald Kohn Speech (2:15)

As you can see, there is plenty to make the markets soar, or more likely crash and burn.  As was already mentioned, PCE was already making waves in the markets and sending MBS pricing back towards their 200-day moving average, which may even break this week.  Hold on, as the rollercoaster ride has likely only begun and this one may be a lot more like Montu than Sheikra from now on.

As you know, I am big on technical indications, aka charting, along with the underlying issues.  Taking a look at the charts, we clearly see the fall, and subsequent freefall of mortgage backed securities, all the way down to test their 200-day moving average, which kicked off their retracement move.  With the PCE this morning, you can now see the retracement appears to be over and a move back to at least retest the 200-day moving average is now underway.  If this level does break, which it has a fair chance to, that “mortgage rate bubble” will likely have pooped and rates will definitely be moving ever higher.