The stock markets are open flat after weak futures, a possible side effect of weak earnings from Intel.

The very-important CPI report which tracks prices at the consumer lever (measure of inflation) was almost in line with expectations at a reading of .3 compared to .2 forecasts.  Even this .1 difference is of concern to bond markets as CPI is one of the most important inflation indicators we have.  A mitigating factor was that the core rate which excludes volatile food and energy came in at a reading in line with expectations at .2.  Of concern as well is the year over year rise in Core CPI numbers which stands at a 2.4%, which is fairly high.  Annualized over the last 3 months, it's at an even more alarming 2.7%.  And considering food and energy prices, it's at 4.1% for 2007 compared to 2.5% in 2006.

 This data will likely keep some pressure on the FED from lowering rates any further than the current expectation of .5, and my lead some to revise their expectations to .25.  However, the Fed has shown a willingness to move inflation concerns to the side burner somewhat in the interest of stimulating the economy. 

In industry-specific news, MBA REFI index skyrocketed an impressive 43.4% to the highest reading in almost 4 years.  Refi's continue to gain market share compared to purchases, as would be expected in a dropping rate environment.  That piece of the pie has been steadily approached 2/3's of mortgage activity.  This is the highest market share for Refi's in almost 4 years as well.

Continuing the news for this action packed wednesday were the Industrial Production numbers, which came in unchanged.  This was better than the -.2% forecast and can have a negative impact on bonds.  Capacity Utilization, when if high, can be a warning sign of inflation, came in at 81.4%, higher than the expected 81.2%, and higher, in general than we would like to see to ease traders fears of inflation.

The day's not over yet, with the beige book yet to come, but this morning's data gives more than a hint of inflationary pressures rising to point that attention is required.  Depending on the beige book and the trading day, I would not be surprised if some analysts back down from their strong stance on a 50bps Fed Rate Cut.

Since the open, MBS's have been flat to down,  and is currently selling off down between 4-5/32nd's depending on the tranch. and continuing to slide.  Strong stocks today (which are likely as traders will see yesterday as a set-up for buying opportunities) will hurt rates today.  The question is by how much.  If bonds continue to slide, we could be down .25-.375% in discount, depending on whether or not your lender repriced yesterday to capture to improvements.  Stay tuned for the beige book, or check it out on bloomberg's market calendar when it comes out at 2pm est.

Lock Comment: please refer to previous posts and note that we are in ranges that push technical resistance levels on moving averages.  As I said, the market will always react more swiftly to data that brings that technical deviation back toward the middle.  We are experiencing some of that this morning, but it will be baked in by the time rates come out.  Keep a sharp eye for a run up on stocks, which could pull some money out of the bond market.  Though not always a big impactor, the Beige Book can effect rates as well. Assuming level or declining stocks until then, float, but be ready to lock.  If a sell-off in bonds gains momentum, check back on this blog for a mid-day alert.

 So again, based simply on the technical read of the data, I'm holding a cautious lock recommendation for the near term.  If you're very bearish short term, your personal preferences may lead you to float.  Long term, I am more bearish though and would float recommendations until the 5.0% coupon drops below a price of 99-10/32nds for a February coupon.  It is currently at 99-18/32nds.  I would want to see indication of significant downward momentum before being convinced that we won't remain in "correction mode."  The markets could let us know what we need to know in 3 hours, or 3 days, or 3 weeks.  Either way, try to keep an ear out for news, especially as it pertains to inflation vs. the ailing market's need for rate cuts.  This will be a hot debate.  And of course, check back here for updates (eventually we will have automatic alerts available to send via email or text message), please email the site admin at if you'd be interested.