New factory orders hit the tape this morning posting a rise in Sept by .9%.  That is slightly above the .8% number economists were predicting.  The faster manufacturers get comfortable with their current inventory levels, the better.  There are already signs that they are approaching this point with the October ISM index having shown a rising inventory component for the first time in over a year.  It was the fifth month out of six that orders rose, after they dropped an unrevised 0.8 percent in August.  Machinery, which makes up about 7 percent of factory orders, had the largest surge of 7.9 percent in its biggest increase since March 2008.  In other news, Berkshire Hathaway announced it will acquire the 77% of Burlington Northern it does not already own in a deal valued at $44 billion which seems to signal Warren Buffett’s vote of confidence in the economy.

Today, the FOMC begins its two-day meeting which will conclude with its announcement tomorrow afternoon around 1:15pm CST. The words of the announcement will be closely scrutinized but are expected to repeat the expectation that mortgage rates will remain “exceptionally low” for “an extended period.” It is also expected that the FOMC will hold the funds rate at its lowest-ever range of 0% to 0.25%, where it’s stood since December 2008.  However, there’s plenty of unease about the contents of the Fed’s policy statement Wednesday.  The May 2010 fed-funds futures contract, at Monday’s settlement, priced in a 52% chance for the FOMC to raise the funds rate to 0.5% at its late April meeting. On Friday, May fed funds priced in a 54% chance, down from a 90% chance only a week ago. We should see the continued sideways trade until tomorrow’s release.  Buying overnight did help us recover from yesterday’s weak close, but mortgages have slipped after the factory orders release.  We continue to push the 62% retracement level of 118-24 while daily trends remain neutral.  We are likely to keep seeing a stall today, again, due to the news in the latter half of this week.  We want to still see the downside limited so that the Bulls stay in control and can possibly finish out this week on top.

Currently the 10yr is off 6, trading at 3.44, while mortgages are off 4 to 5 ticks in the lower coupons.