Currency wars is what this is all about and the Fed is getting exactly what it hoped for, consumer expectations of rising inflation to shut the door on deflation.  This was evidenced in last week’s Michigan Sentiment Survey.  With QE2 priced in “before” it happened and the negative connotations mentioned above, treasuries have continued to be slaughtered, sending credit costs higher, doing nothing to stimulate the economy.  Look for the Fed to try and talk rates back down.

So far today, that hasn’t been the case as Uncle Sam bought about 8 billion in paper with little to no effect.  10’s are trading at 2.85%, down 22/32’s on the day.  Mortgage backs are off 9/32’s and stocks are up 65 on the big board.

Retail Sales hit the tape up 1.2%, a touch better than expected.  Stripping out autos, the index was plus .4%.  Business inventories/Sales were also released, up .9% and up .5% respectfully.  The week ahead is a doozy, starting with inflation numbers (PPI and CPI) over the next two days.

Technically, the selling today has taken the chart below the October lows (high yield mark) and then rebounded ever so slightly.  Bearish readings and Trend Intensity are evident on every chart time frame.  The best we can hope for is that the October low will hold (good so far) and the market will begin to repair itself.  Odds are good for a rally based on oversold conditions along.  Just the same, this is not a market to mess with.  Until there is a sea change in the way traders view QE2, this version of Sonny and Cher’s “the beat goes on” will continue.

Retail Sales and strong manufacturing results out of the Empire State didn’t help either.  Mortgage backs performed better than treasuries as spreads tightened.  Technically, it is time to pay attention.  Weak day structure on the 10 year note chart is reinforced by a second consecutive day close below the 8 day moving average.  That’s the bad news.  Good news is that intraday studies are very oversold and the market has good support close by.  So to speak, we are at that line in the sand.

Next week will be the true test, one that we would expect will see the market trade sideways to a little better (slightly improving mortgage pricing). Overall, we think this is the low probability trade as QE2, even though it is fully priced in, is a force to be reckoned with.  When the Government is the buyer of choice, most follow the ant age, “Don’t fight the Fed.”

Call it neutral/bearish and not a market to throw caution to the wind.  Next week’s data is light with Housing numbers, Leading Economic Indicators, Philly Fed Survey, and the Fed’s Beige Book.  Have a great weekend.

The New York Fed (Empire State) Manufacturing report was also released, jumping 12 points to 15.7.  Both new shipments and orders improved at the fastest pace since June.  Overall, the factory sector in NY seems to be on the mend.

Last but not least, we got a look at the University of Michigan Sentiment Survey which declined from 68.2 to 67.9.  Current conditions did the damage, falling 5.4 points.  Future expectations did a little better, up 4 points for the month.  Big Ben, printing press supervisor for the Federal Reserve was speaking in bean town this morning.  He all but assured the market of QE2 coming with details most likely presented at their November 2^nd/3^rd meeting.

The 10 year note, 30 year bond, and mortgage backs have been taking a beating.  The note is currently of 18/32’s.  Mortgage backs continue to slide, now off 7/32’s.  Stocks are a mixed bag and no help to bonds.  Dow off 46 points, Naz up 21 points on Google’s earnings.  That stock is up 58 bucks!

From our perspective, the market has fully priced in QE2 and has shifted the focus to a weak dollar and indigestion from 66 billion of auction paper that is now underwater.  Call the market neutral/bearish with good support nearby.  As we have preached all week, defense is your friend, Austin mortgage borrowers, and the exclusive float down option from Max Leaman is a no brainer.  We’ll try to wrap it up later today.

With both retail and fast money accounts quiet, pricing reflects much of the same.  10 year notes are up 1/32^nd, current coupon mortgage backs up 1/32^nd, and stocks down 20 points on the big board.  The week ahead will feature Import Prices tomorrow, Weekly Unemployment Claims and inflation data (PPI) on Thursday, and CPI (inflation at the consumer level), Retail Sales, Empire State Manufacturing, and Michigan Sentiment Survey on Friday.

Currently, the best bet for Austin mortgage borrowers: don’t take historic low Austin mortgage rates for granted.

Both bonds and stocks finished on the plus side today.  Not bad considering another batch of soft economic data and it being Friday the 13^th.  Speaking of data and events, the entire week was glooming starting with the Fed admitting (in so many words) that a second round of treasury buying is needed, Productivity slipping, Weekly Unemployment Claims rising, Retail Sales up but below forecast, CPI a non-event, Michigan Sentiment better but still below 70, and the Philly Fed downgrading their outlook for that region.  No wonder stocks took it on the chip and bonds, notes, and mortgage backs look like the Eveready bunny.

After yesterday’s selling, the 10 year note rebounded nicely, up 15/32’s on the day.  The week is ending with all time frames, daily, weekly, and monthly looking like 3 bulls in a china shop.  All ready for continued action.  Conditions favor continued bullish price action (Austin mortgage price improvement) but probably at a slower pace.  Reason being is that we’re in the 10^th consecutive week of positive price action on the weekly chart.  Something that is rare to see (8 weeks or more).

With so much doom and gloom built in, the sledding towards lower yield will become more difficult.  Just the same, the trend will be persistent and keep the market neutral worst case into next week.  Only a reversal in stock or economic sentiment will get in front of this bull.

Earlier today, CPI, inflation at the consumer level, hit the tape plus .3% while the core index was up .1%.  Auto prices and gasoline were all to do about the increase which in the big picture is quite tame.  Actually, our bigger concern is about disinflation as the economy cools.  Retail Sales were also in the mix, up .4% with the ex-autos component up .2%.  Auto sales were behind most of the push here as well, rising 1.6%.  While the numbers look encouraging on the surface, we see the loss of Census workers, loss of emergency unemployment benefits, and the withdrawal of various forms of stimulus starting to drag on the consumer.  Retailers will need a great holiday season to make it a good year.

Business Inventories completed the economic trifecta, rising .3% as sales fell .6%.  We talked about this earlier in the week, commenting about inventory builds with sales faltering.  Not a good prescription for GDP.  Trading, post data has been a light volume affair with the 10 year note up 8/32’s, mortgage backs unchanged to up 2/32’s, and stocks down 22 on the big board.  We expect a quiet day with a neutral bias.

We see a ton of pessimism build into pricing  which could limit further rallies but at the same time, any dips will be a buying opportunity for investors.  Given the auction paper to digest and the soft economic background, we expect the market to trade in a small range with a bullish bias, allowing for Austin mortgage pricing to be slightly better or worse from today’s levels over the next week or so.  We’ll wrap it up later today.

Stocks are getting pounded, down 200 on the Dow, the 10 year note is up 12/32’s, and mortgage backs are plus 4 to 6/32’s depending on the coupon. Why you ask.  First up, CPI, inflation at the consumer level fell .1% while the “core index” (ex-food and energy”, rose .1%.  Tame by any means with a whiff of deflation in the cards (slim chance in our opinion).  Michigan Sentiment Survey was the one that raised an eyebrow, falling nearly 10 points to 66.5.  Economists noted that consumers have gone into a cocoon, chaining their wallets to themselves only to be opened for necessitates.  Expect Retail Sales to soften in the future.

BP finally put a cork in their crude oil jug, a welcome site indeed. Technically, the late rally (yesterday) provided the perfect set up for a continuation pattern (further rally).  Stocks are really the major influence here.  We see this a just a move to the top of the range (2.90% 10 year note).  Any where here, current mortgage pricing or a little better is a good place for borrowers to lock in their Austin mortgage interest rates.  Any reversal in stocks will simple reverse our direction and take the market to the lower part of the range.  Enjoy the historic low Austin mortgage rates.

Congress passed the comprehensive Financial Regulations bill and President Obama will sign it into law soon. The bill provides a framework for oversight of the financial services industry, and certain aspects of the bill will affect mortgage lending and the home buying process. The bill calls for various regulatory agencies, some of which will be newly created, to determine the details. Implementation of most of the new mortgage-related rules is expected to take 18 to 24 months to complete.

Bonds, notes, and mortgage backs have felt the pinch but mortgage backs have held up quite nicely.  10 year note is off 33/32’s (yield 3.55%), 30 year bond is off 74/32’s (yield 4.42%), and yet MBS are down 8/32’s.  The week ahead is light on data with Retail Sales, Industrial Production, and Michigan Sentiment survey being the heavy hitters on Friday.  We will however have supply to contend with this week as the Treasury auctions 38 billion of 3 year notes tomorrow, 24 billion of 10 year notes on Wednesday, and 16 billion of the 30 year bond on Thursday.  Stock pricing and movement will hold the key to how well the paper is received.

Technically, the weakness today has taken the chart back to pre-Europe chaos levels and forced sell signals to emerge on 60 minute charts.  Daily charts however are not giving us a new bear trend.  When you have this type of divergence, the market is trying to tell us that it will take time to show it’s true colors as nothing is in harmony.  In English, this means that Austin mortgage rates and pricing can go one way or the other in short order but most likely hold steady at current levels.  Best to stay on defense as stocks certainly look better, Europe looks better, and the Federal Reserve Chairman hints of Fed Funds rate hikes sooner than later.  Personally, we like the chart (better chance of lower Austin mortgage rates/better pricing) but the fundamentals (economic data) points to a steady recovery.  A tug of war for Austin mortgage interest rates seems in the cards.

One word of caution as you look at the chart. Currently, we’re right up against the top of the range (116 10 in futures and 3.83% 10 year note yield). For the market to do better (Austin mortgage pricing improvement), we need to breach and close above 116 10 (below 3.83% yield). Otherwise, all that has happened is that we’re tested the top of the range and we’ll once again consolidate, moving back towards the center of the range. Traders like the set up and prefer to short (sell) the market at this level with tight stops. Meaning that if their wrong, they will know quickly and will get out with small losses.

The economic calendar heats up as well this week. Housing data tomorrow, inflation and Retail Sales on Wednesday, housing, inflation, and Weekly Claims Thursday, and Michigan Sentiment Survey on Friday.