The technical recovery is still in place

FNMA 30-YR 4.0%

Previous close 98.720
Opened Up 0.13bp @ 98.844

Key Economic Data:

EUR / USD  1.3160  Up  0.0029
USD / JPY  83.6145  Down  0.1565
GBP / USD  1.5506  Down  0.0007

OIL    89.31  Down 0.06
Gold  1,384.80  Down  1.30

Key Economic News:

No schedule news again today. The technical recovery is still in place and provided we remain at or near 98, we are positioned to ride this current wave to 100. I wish all the knuckleheads would stop selling into the POMC and soon my wish will come true. Until then, we have to continue to read synthetic tea leaves. Big news day tomorrow…stay alert. Have a great day.

Dollar’s Up, Euro Down, Dow Cannot hold gains

FNMA 30-YR 4.0%

Previous close 98.750
opened Up 0.41bp @ 99.156

Key Economic Data:

EUR / USD  1.3157  Down  0.0032
USD / JPY  83.6950  Down  0.2873
GBP / USD  1.5554  Up  0.0022

OIL    88.40  Up  0.38
Gold  1,366.00  Up  6.80

No  Econ News until Wed, lots of new on Wed and Thursday.

Double bottom, gap up show classic trend reversal. 4% FM coupon held 98, hit 99, 100 is the next stop. We may go back down to 98.5 but not 98. If we go back down to 98, all bet are off for a bond rally. The Dow is demonstrating most of the classic signs of a market top, the bull is getting tired!

FNMA 30-YR 4.0% Previous close 99.310 Opened Down 0.09 @ 99.219 Key economic Data: EUR / USD 1.3421 Up 0.0030 USD / JPY 83.3405 Down 0.0500 GBP / USD 1.5785 Down 0.0077 OIL 88.44 Down 0.17 Gold 1,398.90 Up 0.90 Key Economic News: Very strong spending; PPI up due to Food, Energy, and rebound in Vehicle prices Retail sales rise more than expected in November, as October and September figures are revised up sharply. Report increases upside risks to 2 1/2% call for Q4 growth. Producer price index rises more overall than expected in Nov, but core increase is roughly in line as vehicle prices recover some of October declines. Key Numbers: Retail sales +0.8% in Nov (mom, +9.2% yoy) vs. median forecast +0.6%. Ex autos +1.2% in NOv (mom, +7.9%) vs. median forecast +0.6%. PPI +0.8% in Nov (mom, +3.5% ypy) vs. median forecast +0.6%. Ex food and energy +0.3% in Nov (mom, +1.2% yoy) vs. median forecast +0.2%. Main Points: 1. Headline retail sales rose more strongly than expected in October, pushing up “core” retail slaes (excluding vehicles, building materials, and gasoline) by 0.9%. Morover, September and October core numbers were revised up sharply (by 0.3% and 0.2% points, respectively). Consumer spending thus looks very firm in Q4: retail sales is tracking at an annualized rate of around 8 1/2% into the fourth quarter. 2. The Producer price index was firmer than expected overall, but with a bit less of a rebound in the core index than we had anticipated. The upside surprise in the headline was in food prices (+1.0% on the month, not annualized) while the modest downside surprise in the core was that vehicle prices retraced a smaller percentage of their October declines than we expected. Inflation pressure from commodity price increases are evident deeper in the production pipeline as the core index for intermediate (i.e., partly processed) goods rose 0.7% in November. This follows a 0.6% increase in October. That said these presures have generally not passed forward into finished producer goods and to retail prices in recent years. 10:00: Business inventories for Oct…another significant increase? The median forecast implies a 0.3% increase in retail inventories given the increase reported for manufacturing (+0.9%) and wholesale (+1.9%). This would be smallest increase in six months for that component. Risks lie to the side of a larger increase. Median forecast (of 41): +1.0%, ranging from +0.1% to +1.5%; last +0.9%. 14:15: FOMC statement…no major changes. The statement following the Federal Open Market Committee (FOMC) meeting on Tuesday is likely to be least interesting of the year. We expect only a very modest “lean” in the direction of better data. Kansas City Fed President Hoenig will probably cast his eigth consecutive dissent against the current poliFNMA 30-YR 4.0% Previous close 99.310 Opened Down 0.09 @ 99.219 Key economic Data: EUR / USD 1.3421 Up 0.0030 USD / JPY 83.3405 Down 0.0500 GBP / USD 1.5785 Down 0.0077 OIL 88.44 Down 0.17 Gold 1,398.90 Up 0.90 Key Economic News: Very strong spending; PPI up due to Food, Energy, and rebound in Vehicle prices Retail sales rise more than expected in November, as October and September figures are revised up sharply. Report increases upside risks to 2 1/2% call for Q4 growth. Producer price index rises more overall than expected in Nov, but core increase is roughly in line as vehicle prices recover some of October declines. Key Numbers: Retail sales +0.8% in Nov (mom, +9.2% yoy) vs. median forecast +0.6%. Ex autos +1.2% in NOv (mom, +7.9%) vs. median forecast +0.6%. PPI +0.8% in Nov (mom, +3.5% ypy) vs. median forecast +0.6%. Ex food and energy +0.3% in Nov (mom, +1.2% yoy) vs. median forecast +0.2%. Main Points: 1. Headline retail sales rose more strongly than expected in October, pushing up “core” retail slaes (excluding vehicles, building materials, and gasoline) by 0.9%. Morover, September and October core numbers were revised up sharply (by 0.3% and 0.2% points, respectively). Consumer spending thus looks very firm in Q4: retail sales is tracking at an annualized rate of around 8 1/2% into the fourth quarter. 2. The Producer price index was firmer than expected overall, but with a bit less of a rebound in the core index than we had anticipated. The upside surprise in the headline was in food prices (+1.0% on the month, not annualized) while the modest downside surprise in the core was that vehicle prices retraced a smaller percentage of their October declines than we expected. Inflation pressure from commodity price increases are evident deeper in the production pipeline as the core index for intermediate (i.e., partly processed) goods rose 0.7% in November. This follows a 0.6% increase in October. That said these presures have generally not passed forward into finished producer goods and to retail prices in recent years. 10:00: Business inventories for Oct…another significant increase? The median forecast implies a 0.3% increase in retail inventories given the increase reported for manufacturing (+0.9%) and wholesale (+1.9%). This would be smallest increase in six months for that component. Risks lie to the side of a larger increase. Median forecast (of 41): +1.0%, ranging from +0.1% to +1.5%; last +0.9%. 14:15: FOMC statement…no major changes. The statement following the Federal Open Market Committee (FOMC) meeting on Tuesday is likely to be least interesting of the year. We expect only a very modest “lean” in the direction of better data. Kansas City Fed President Hoenig will probably cast his eigth consecutive dissent against the current policy stance. 17:00: ABC consumer comfort index…It’s been stuck between -47 and -45 since mid-September, last at -45.cy stance. 17:00: ABC consumer comfort index…It’s been stuck between -47 and -45 since mid-September, last at -45.

Payroll Day…very disappointing

FNMA 30-YR 3.5%

Previous close 96.940
Opened Up 0.64bp @ 97.563

Key Economic Data:

EUR / USD  1.3336 Up 0.0127
USD / JPY 82.6730  Down  1.1510
GBP / USD  1.5688  Up  0.0088

OIL    87.37  Down  0.63
Gold  1,398.90  Up  9.60

Key Economic News:

Payaroll day…and also nonmanfucturing ISM and factory orders.

Disappointing all around…
A clearly disappointing report all around, with payrolls up much less than expected and the unemployment rate up. Although hours worked rose only 0.1% in November, this rough proxy for real GDP less productivity changes is tracking at roughlt a 2 1/2% annual rate. Flat wages coupled with the small increase in payrolls suggests very little wage and slary growth in November.

Key Numbers:
Nonfarm payrolls +39k in Nov vs. median forecast +150k.
Private payrolls +50k in Nov vs. median forecast +160k.
Unemployment rate +0.2pts to 9.8% in Nov vs. median forecast 9.6%.
Average hourly earnings flat in Nov (mom, +1.6% yoy) vs. median forecast +0.2%.

10:00: ISM nonmfg index for Nov…will it improve? This index has been running below its manufacturing cousin throughout the recovery, which is actually fairly unusual for the relationship between the two. Most economists expect an increase this month, but only one of the 76 reporting in to Bloomberg expect the gap to reverse.
Median forecast (of 76): 54.8, ranging from 52.3 to 59.4; last 54.3.

10:00: Factory orders for Oct…a setback. It would take a huge (3.1%) increase in bookings for nondurable goods or a big revision in -3.3% already reported for durable goods to avoid a decline in factory orders. Inventories probably increased at a slower pace than the 0.8% reported for September, in durable goods the increase was only 0.4%.
Median forecast (of 69): -1.2%, ranging from -2.5% to +1.0%; last +2.1%

Blame it on Europe

FNMA 30-YR 3.5%

Previous close 98.310
Opened Down 0.70bp @ 97.625

Key Economic Data:

EUR / USD  1.3110  Up  0.0127
USD / JPY  84.2080  Up  0.5230
GBP / USD  1.5596  Up  0.0034

OIL    85.47  Up  1.36
Gold  1,390.30  Up  4.20

Key Economic News:

Jean-Claude Trichet, the French civil servant and current President of the European Central Bank, announced basic details for a 1 trillion euro bailout of debt stricken nations such as Ireland, Portugal, Spain, and Greece.  Promising to purchase their debt, the ECB’s goal is to stabilize their region while austerity measures can be put in place to balance their budgets.  While details are sketchy, equity markets from Europe to Asia to the U.S. dropped that wall of worry and rallied.  Case in point is the Dow, up nearly 250 points while the Naz is up 57 points.  You already know what that did to mortgage rates and pricing.  Current conditions are a little nasty with the 10 year note off more than one point while mortgage backs are down 21/32’s (-.65625 in pricing).  ADP was out with its call for Friday, expecting job gains of 93K (market expectations of plus 130K) and Construction Spending rose unexpectedly by .07%.  ISM’s report on business was also released, showing growth in manufacturing for autos but a continued struggle in housing related industries.  Call that report a mixed bag.  The stealth like move to higher yields has pushed our chart to the bottom of the range.  Although there’s blood in the street, the move is suspicious because we have not taken out the low (high yield mark) set back on September 13th. Bond bears must build on the selling today to confirm that a new major bearish trend is underway.  In English, we’re back to that line in the sand.  Given expectations for a better Employment report on Friday, we see little to no relief in mortgage pricing.  Any type of improvement you see today or tomorrow should be sold.  Too much risk going into Friday’s high profile release.

One lone indicator today…

Key Economic Data:

EUR / USD  1.3107  Down  0.0135
USD / JPY  84.2850  Up  0.1805
GBP / USD  1.5560  Down  0.0032

OIL    84.55  Up  0.79
Gold  1,363.80  Down  0.50

Key Economic News:

One lone indicator today…

10:30: Dallas Fed manufacturing index for Nov…will it hold? After three months in seriously negative territory, this index recovered to a slightly positive reading in October. The detailed indexes had not been quite as bad as the headline during the third quarter, they were more mixed in October-up for production (to +6.9 from +4.0) but down a bit for new orders (to -2.5 from 0) and more than a bit for number of employess (to -4.1 form +1.8). The three economists who forecast it expect little change, on balance, in the headline reading. This report follows three other Fed surveys, which have given sharply divergent mesages (Richmond and Philadeiphia both up; New York down sharply).
Medain forecast (of 3): +3, ranging from 0 to +7; last +2.6.With traders back from their long weekend, concerns over Europe, and Black Friday not producing the numbers everyone was hoping for. I would expect the market to improve today.

Advice:

I would float short term, float long term.

My position on MBS stays long today.

Strong Retail sales; Empire declines sharply

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:

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.

My position on MBS changes to long today (buyer).