The market has been choppy all day with stocks and bonds trading on both sides of unchanged. Earlier today, CPI, inflation at the consumer level, rose .2% while the core (ex-food and energy) was up .2% as well. Overall, the print is not inflationary and shouldn’t give the Fed heartburn. Weekly Unemployment Claims were also released, down 10K to 514K. Continuing Claims fell 75K to 5.99 million, a level not seen since March. The gradual drop in claims is a welcome sign that life may be returning to the labor market. Trouble is, 500K plus is a very high number and Continuing Claims are skewed by many that have run out of benefits. We still have a long way to go on the labor front.

In the FOMC minutes released yesterday, you will find that the Fed expected the Unemployment Rate to be at 8% or below by this time next year. We shall see. The last piece of economic news for the day came via the New York State manufacturing report which jumped to 34.57 from 18.88. New orders, shipments, and inventories all posted positive adjustments while prices paid fell slightly. That’s the best of both worlds.

Market action, as I mentioned earlier has been a two way street. With earning season (stocks) in full swing, volatility has really picked up in both equities and bonds. Mortgage backs have been the worst performer on the day with spreads to treasuries widening as sellers continue to lean on the market. Currently, the 10 year note is off 7/32’s (yield 3.45%), MBS off 9/32’s, and stocks off only 1 point on the big board. Technically, we are trading a lower lows, lower highs type of pattern. By nature it is bearish and suggests higher interest rates, worsening Austin mortgage pricing present the higher probability. We will want to pay close attention the 10 year yield as it approaches 3.48% – 3.50%. That level is key support and “should” provide a near term bottom, followed by a rebound. If that level does not hold, MBS could feel another ½ point of pain. Play defense as the trend is not your friend!