Mortgage Market Update

Another week, another day stuck in Brasil.  Not so bad, just like the mortgage market lately.  There are times when I like being wrong, and this is one, though I still do not like the way the charts look and reality will likely set into the markets as the traders come back from the holiday week.

So what happened last week that sent the markets higher?  Well, for one thing, the treasury auctions went very well, even at the longer durations this time, and that despite larger amounts being offered.  Nothing works better than strong demand for sending prices higher, and mortgage backed securities, and thus mortgage rates, reaped the overflow.  Add to that the housing data this past week showed the market is not doing as bad as the data the prior week suggested.  Even Purchase applications are starting to rise again, providing more hope.  Is it all a result of the tax credit?  Inflation is still fairly tame, but is climbing again and Jobless Claims fell below the 500K mark for the first time since the beginning of the year.  But one of the biggest events of the week didn’t even happen in the US, but in Dubai.  Dubai World, the largest corporate entity in that region, revealed it may default on its $60 billion in debt and that set equities across the globe into a dive, and MBS prices rose more.  It is events like this that breaks the “projections” of charts at times.  But will the rubber band break or snap back with a vengeance?

Well, the week ahead starts off fairly strong with the Chicago PMI later today, has data plays through the week, ultimately ending the week with a bang, the Jobs Jamboree.  Here is this week’s currently scheduled data and events…

• Monday:  Chicago PMI (9:45), 3-month T-Bill Auction (11:30), 6-month T-Bill Auction (11:30)
• Tuesday:  ISM Manufacturing Index (10:00), Pending Home Sales (10:00), 4-week T-Bill Auction (11:30), Charles Plosser Speaks (12:20)
• Wednesday:  MBA Purchase Applications (7:00), ADP Employment Report (8:15), Crude Inventories (10:30), Beige Book (2:00)
• Thursday:  Ben Bernanke Speaks (TBA), Barack Obama Speaks (?), Jobless Claims (8:30), Productivity and Costs (8:30), 30-year T-Bond Announcement (9:00), ISM Services Index (10:00), Treasury Announcements (incl. 3 & 10-year T-Notes) (11:00), Money Supply 4:30)
• Friday:  Nonfarm Payrolls (8:30), Unemployment Rate (8:30), Hourly Earnings (8:30), Average Work Week (8:30), Charles plosser Speaks (10:00), James Bullard Speaks (1:15), Treasury STRIPS (3:00)

Once again we have a week full of possible market movers, and this week likely will do just that.  Will we continue to see some mixed indications on the economy, or will things begin to change?

Looking at the charts, we again see both positive and negative indications surrounding the future.  The good news is we are in an uptrend, along with the fact the 100-day MA is likely going to move through the 200-day MA.  Stochastic indications still point to the need for a corrective move, that retracement I have talked about.  I still expect to see MBS prices dip to around there 25-day MA at a minimum before they can take the next step.  That corrective move will likely take place this week and let’s hope it holds because that would be a very good thing for the future of mortgage rates.

The bottom line this week is that traders will be back in full force so any moves will be “real” ones.  A corrective move remains a necessity and will likely occur this week.  As we have been, take it one day at a time, but expect higher mortgage rates, possibly throughout the week, then we might see MBS prices take the next step higher.