Hello 2010!  The first trading day of the new year has been all about stocks and commodities, with both sectors flying off the page.  Stocks have gotten their legs from a continuation of last year’s Santa Clause rally and Chinese manufacturing expanding.  Most European exchanges were higher by ½% to 1.0%.  Commodities have been the beneficiary of not only the recovery theme but once again a falling dollar.  Gold up over $20.00 and oil up nearly $2.00 have been just a couple of today’s power plays.

The economic calendar kicked off the new year with ISM’s Purchasing Manager’s report and Construction Spending.  ISM printed its highest level since November 2006 while Construction Spending fell to its lowest level since July 2003.

Friday’s Employment data for December will be released Friday at 7:30 am cst, setting the tone for the month ahead.  Given the divergence in data, the days ahead will be a challenge predicting Austin mortgage interest rates.  The GDP growth and recovery theme seems to be more about replacing inventory taken off the shelves than any real growth.

What needs to happen to solidify a recovery is an expansion or long term investment, consumer spending, and lowering the unemployment rate.  If not, we could see another economic dip.  If the Fed steps in too quickly to raise rates, given my last statement, we could see a repeat of what happened in 1937 when the Roosevelt administration prematurely bumps rates.  Housing will also be a big factor.  While existing home sales have some wheels due to depressed values and the 8K stimulus.  New construction has and will continue to suffer as the builders must compete with existing home sales.  Tough to make any money when you sell for below your cost to construct.

As you have all noticed, mortgage rates have been on the move.  Their level will be critical as we judge demand.  Technically, we’re near good support.  Trouble is, we see very little demand from buyers showing up why the likes of Pimco’s Bill Gross are opening talking about reducing their exposure to Treasuries and UK Sovereigns.  We’ll need to stay quick on our feet until the sky clears.  Currently, let’s enjoy a little green on the screen as the 10 year note is unchanged, mortgage backs are plus 6/32’s, and stocks up a buck sixty.

Happy New Year!