We have quite a bit going on today...

Of course the star of the party is April's Consumer Price Index (CPI) report, one of the most closely watched gauges of inflation.  Headline inflation rose at .2%, consensus was for .3%.  Core inflation, factoring out energy and food, rose at .1%, consensus was for .2%.  This is very good news for an economy that is morbidly afraid of inflation.  Both stocks and bonds are reacting favorably.  The day over day reading on MBS is only up 8/32nds on the 5.5, BUT prices had dropped so far overnight that we are actually up 16/32nds since the open.  Whether or not our rally continues will depend on several factors: 

  1. Remaining Economic Data for the day, namely Oil Reserves report in about 20 minutes.
  2. Reaction to numerous Federal Reserve member speeches (more on that in a bit)
  3. The strength or weakness of the over 200 companies releasing earnings today.
  4. Any relevant trade-flow issues on MBS. 

Let's talk about that trade flow issue for a moment.  Yesterday, one of our favorite things happened (can you smell the sarcasm?): Stocks and bonds both lost ground.  It's not uncommon to see this movement to the sidelines just before a major report like the CPI, but the question that will be answered as the day continues is: is the data today good enough to increase volume to a point where MBS and Stocks can both have excellent days?  Seeing as how MBS and treasury advances have more or less halted as the Dow has charged strong out of the gate, I fear we may already have the answer to that question.
Hopefully the remaining earnings news douses the fire in the equities markets. 

There is other news to discuss this morning, though none of it as important as CPI. 

1. Freddie Mac released earnings, a loss, but slightly better than expected and announced it would raise capital. 

2. Rosengren (boston fed pres.), took a long time to say banks need to improve risk management, possibly through increased regulation.

3.  Fed Governor Kroszner took a similarly long time to say what could have been said with a simple nod of the head.

4. Foreclosures continue to rise - up 65%.  Surprise Surprise...


So there you have it friends.  It looks to remain choppy for the rest of the day.  Lenders will take that into consideration when pricing.  Tomorrow is key day with lots of data to digest including Jobless claims and manufacturing data.  The moment that we're "certain" about rate movements in the short term is the moment we're fools.  I do think that several key ingredients are in place for rates to decrease this year, but the dark horse will be this annoying little "recession evasion" that the economy seems to be executing.  I mean, (scoff), what are they thinking?!  So, as always, timing in the short term is impossible, as we may have to take more steps back before moving forward again.  

Floating into tomorrow is a very risky play as all the data comes before rates are released.  Take a look at the status of the market as you approach your lock cut off today and ask yourself if you can afford to lose any more ground for the chance of improvement.  If you can wait a week or three, I think we'll be back up a bit.  But that's just one person's opinion.  As always I urge you to synthesize your own understanding and feelings about the market and impending data.