Friday 9/12 ... Key economic reports released...

And nobody seems to care. This morning we had key economic reports released on inflation, retail sales and consumer sentiment. First the inflation reports, the headline producer price index came in well below economists expectations of -.5% drop to come in at -.9, the core number which strips out food and energy came in right where expected at .2% month over month after a .7% increase the month prior. This report helps confirm the fed's position of inflation moderating. Next retail sales, economists where expecting the overall retail sales to come in at a .3% increase, but the number came in at a disappointing -.3% and when you exclude auto sales the number came in at -.7% with expectations of only a -.2% decrease. Both of these reports are very friendly for our mbs'; however no body seems to care and mbs are basically unchanged for today and unchanged since Monday. Very little movement in mbs trading this entire week. We also had the release of consumer sentiment which gives us a reading on how the consumer might be spending money in the future. This number came in much higher then the expectations of 64.0 at 73.1. This report shows the consumer might start to spend money, which in general is good for the economy and usually pulls money away from fixed income investments like our mbs. But again, nobody in the fixed income pit seems to care but after the release of this report the stock market came off their lows.

It appears that traders are in a pause mode right now waiting on the Lehman saga to play out. As you might know, Lehman Brothers, a huge investment and banking firm, is in a lot of trouble right now and they are desperately seeking someone to buy them. Until this saga comes to a conclusion, we feel that we might just move sideways. Reports are coming out that 4 firms including Bank of America and considering stepping in to rescue them. We commonly refer to this as headline risk on this blog.

As for lock advise, it appears that floating is safe. All reports are released so until we get some headline item, or news on Lehman we appear to be trading in a narrow range. The fixed income market has been following the stock market with a pretty good correlation. As the stock market rises, fixed income drops and vice versa. Remember, as the fixed income market sells off, the yield rises which means rates move higher. The Dow is currently down 100 points, if that turns around and moves to the positive the fixed income market which includes mortgage back securities will probably pay the price. So, unless there is a big movement in the stock market you should be safe floating. As always, stay tuned to our blog as we will be able to see in advance if lenders are considering a reprice for the worse and we will let you know.