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Anthony Hood

Equity Investment Capital

Office: 949-891-0067

Email: tony@equityinvestmentcapital.com

website: www.equityinvestmentcapital.com

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Monday, November 29, 2010

Last Friday mortgage prices increased a little, but not much; holiday trade generally doesn't amount to much. This morning the bond and mortgage markets opened better with no data points today; this week however, is filled with data beginning tomorrow. The dollar is stronger again this morning, not what equity markets want to see, the stock index futures were lower as a result. The US rate markets are supported on concern the rescue for Ireland will fail to contain Europe’s sovereign-debt crisis, increasing demand for the safety of U.S. government debt. Next up are Portugal and Spain as Europe's debt issues show little signs of being contained. The tensions between South and North Korea continue to be a concern but so far as these kinds of face offs go, it hasn't been a major impact on the markets.

Christmas shopping (yes, I said Christmas) was slightly stronger than last year. Consumer spending on Black Friday was up about 0.3%, with most retailers better but still remains an unfinished story. Not anyway scientific, I was out briefly on Sunday and wasn't impressed with what I saw at the most prestigious malls in Indy, not as much traffic as one would have expected. Most analysts expect stronger Christmas sales than last year, but refrain from becoming too optimistic.

More QE 2 Fed buying today; the Fed is scheduled today to buy $1.5B to $2.5B of Treasuries due from February 2021 to November 2027 and $6B to $8B in government debt maturing from May 2013 to November 2014. The central bank plans to focus about 86% of its purchases on notes due in 2.5 years to 10 years, leaving the 30- year bond as the security that most closely reflects market expectations for inflation. Since the Fed’s Nov. 3 announcement, the 30-year yield rose 0.28 percentage points, suggesting growing investor confidence in the central bank’s efforts to avoid deflation as the economy expands.

This Week's Economic Calendar:

Tuesday;

9:00 am Case/Shiller 20 city home price index (+1.0%)

9:45 am Chicago purchasing mgrs index (59.8 frm 60.6 in Oct)

Wednesday;

7:00 am Weekly MBA mortgage applications

8:15 am ADP employment data (+58K new private job growth)

8:30 am Q3 productivity (+2.4% frm +1.9%)

Q3 unit labor costs (-0.4% frm -0.1%)

10:00 am Nov ISM manufacturing index (56.4 frm 56.9 in Oct)

2:00 pm Nov auto and truck sales (autos 3.71 mil, trucks 5.35 mil)

Fed's Beige Book (detailed report on the economy)

Thursday;

8:30 am weekly jobless claims (+16K to 423K: con't claims 4.20 mil frm 4.182 mil)

10:00 am Oct pending home sales (unch frm Sept)

Friday;

8:30 am Nov employment data (non-farm jobs +130K, non-farm private sector jobs +140K; unemployment unchanged at 9.6%)

10:00 am ISM Services sector index (Nov 55.0 frm 54.3 in Oct)

Oct factory orders (-0.8%)

Treasuries and mortgages remain technically bearish; it will take a huge rally to change that, and that isn't in the cards currently being dealt. The economic outlook is improving, the Fed is intent in getting the inflation rate back into its comfort range, 2.0% frm the present 0.8%. The recent spike higher in rates reflects that, however it is unclear how high the 10 yr rate has to increase to satisfy traders and investors and completely discount the Fed's target. Sovereign debt problems in Europe are presently helping support the US bond market with some safety buying; likely Europe's debt issues will fade as they have recently whenever another country makes the headlines.

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