There is no relevant economic data scheduled for release this morning.  As such, the MBS market is quiet.  We are awaiting data from the fairly busy week ahead.

Currently, MBS is unchanged from Friday's levels with the 5.5% coupon at 99-28.

The remaining data for the week has potential to cause significant movement culminating with the Non-Farm Payrolls reading on Friday.  Between now and then, we have numerous important reports to digest:

1. Store Sales - tuesday - Importance: low
2. Consumer Confidence - tuesday - Importance: Medium
3. FOMC Meeting begings - Tuesday
4. Purchase Applications - Wednesday - Importance: Medium
5. ADP Employement report - Wednesday - Importance: varies
6. GDP (advance) - Wednesday - Importance: High
7. Employment Cost Index - Wednesday - Importance: medium
8. NAPM Chicago Index - Wednesday - importance: Medium
9. FOMC policy announcement - Wednesday - Importance: High
10: PCE (personal income and outlays report) - Thursday - Importance: High.
11: Jobless Claims: Thursday - Importance: Medium to High
12: ISM Manufacturing Index - Thursday - Importance: medium
13: Construction Spending - Thursday - Importance: medium to low
14: Factory Orders- Friday - Importance: Medium
15: Employment Situation (which contains vitial Non Farm Payrolls number) - Friday - Importance: High.

The first part of the week will be focused on the analysis of the Federal Reserve's monetary policy.  Futures are anticipating a .25% rate cut.  Ever since inflation has been on the rise, Fed rate cuts have actually hurt MBS as overly-aggressive rate cuts are thought to contribute to inflation which devalues bonds and thus forces mortgage rates to rise.  Higher than a .25 is unlikely, as is no cut.  But if the Fed does not in fact cut by .25, the benefit on rates could be tremendous.  

Thursday will speak to the Fed's policy decision as the highly importance Personal Consumption Expenditures component of the Income and Outlays report will speak directly to inflation.

There is simply an abundance of data this week.  The stock market has potentially risen too high for an economy that's theoretically in a recession which opens the door for improvements to MBS this week.  The dark horse, as per usual, will be the buzz surrounding inflation.  The more negative buzz, the higher rates go.  I'm hopeful that the PCE will show that as prices have risen, consumers have reacted by spending a lower portion of their income.
Another potentially even darker horse is the eerie absence of headline risk.  We've been weeks now without a headline shocker that rocks the MBS market.  The absence of bad news has been good news, but just be aware that the unscheduled headline risk can sometimes move markets much more readily than scheduled releases.

So how do you play the week?  As always, as we head into a gathering storm of economic data, be ready to lock at a moment's notice.  If you maintain this diligence, floating is the favored risk.  Keep tabs on the data as it is released.  Major financial news sites will post the results of the reports soon after they are released.  In addition, we try to update this blog immediately following the releases to keep you apprised of market reaction.  In general however, if you see worse than expected inflation, better than expected economic growth (factory orders, Napm, construction spending), and better than expected jobs (non-farm payrolls), Jobless Claims, etc..., these are all signs that rates may increase.  If this items are the opposite, keep floating.

On days like today, keep an eye on the stock and treasury market as they should track fairly well with MBS today int he absence of economic data.

Bloomberg has an economic calendar that will let you know the times that this data will be released.  Immediately following those times look for updates to this blog or any significant movement in treasuries, which, in the absence of mortgage specific headlines, should move in the same direction as MBS, though never usually by the same degrees.

So the water wings are on to start the week as we float down a river of hope that inflation will be tame, growth will be week, and our nation will be unemployed.  Welcome to one of the few industries where we hope (depending on your definition of hope), for bad news!

Stay tuned!