Short Week in Review

• Weekly Jobless Claims dropped to the lowest level since July 2008
• The core PCE inflation index rose at a low 0.9% annual rate
• The Fed lowered its forecast for economic growth for 2011
• Conforming loan limits will remain unchanged from 2010 levels through the third quarter of 2011

HAPPY THANKSGIVING

Week in Review

• The Jobless Claims four-week average declined to the lowest level since Sept. 2008
• Bernanke testified that the $600B quantitative easing could create 700K jobs over two years
• The Treasury will auction $99 billion in 2-yr, 5-yr, and 7-yr securities next week
• Oil prices dropped 6% from the high for the year reached last week

It was another volatile session. CPI inflation came in lower than expected. Housing Starts also came in below the consensus, mostly due to a decline in multi-family units. Fed Chief Bernanke testified that the latest $600 billion quantitative easing program could create 700,000 jobs over two years. The Dow was down 15 points.

Anticipation of the Fed's quantitative easing program pushed mortgage rates down to the lowest levels in decades, but they have moved significantly higher since the announcement. The size of the program was close to expectations. With yields so low, though, investors have been questioning what could push them lower in the future.

There has been substantial opposition to the quantitative easing program from other countries and from many US politicians and economists, meaning that the Fed will face strong resistance to an expansion of the program. Unless the economy falters, it may be difficult for mortgage rates to hold near recent lows.

Week in Review

-The Fed's Bullard suggested that Fed actions typically impact the economy in 6 to 12 months
-Weekly Jobless Claims fell to the lowest level since July
-Oil prices reached $88 per barrel, a two-year high
-The Fed will purchase $105 billion of Treasury securities over the next month

This morning, weekly Jobless Claims fell to 435K, below the consensus forecast of 450K. The four-week average declined to 447K. October Import Prices ex-oil rose 0.3%, the same as last month.

The September Trade Deficit came in a little lower than expected. The Dow is down 50 points. No more economic data will be released today. The results from the 30-yr Treasury auction will come out at noon and may have a significant impact on mortgage rates.

Week in Review

• As expected, the Fed made no change in the fed funds rate
• September core PCE inflation rose at a low 1.2% annual rate
• September Pending Home Sales fell 2% from August
• The Treasury will auction $72 billion in 3-yr, 10-yr, and 30-yr securities next week

Stronger than expected Employment data pushed rates higher this morning. Against a consensus forecast for a gain of 60K jobs, the economy added 151K jobs in October. Private employers hired 159K workers, the highest level since April. As expected, the Unemployment Rate remained at 9.6%. Average hourly earning, a proxy for wage growth, rose 0.2% from September.

Following the expected outcome in the election results, with the Republicans taking control of the House and gaining seats in the Senate, MBS markets have rallied. This morning, the ADP estimate for Friday's employment report was for an increase of 43K private sector jobs, which was a little higher than expected.
The FOMC meeting announcement will be released around 1:15 . No change in rates is expected, but the Fed is likely to announce the details of its new monetary stimulus program (quantitative easing). Investors are split in their forecasts, so the news may produce a large movement in rates.

The big story today is the election. As the results become clearer during the session and into the evening, they will influence MBS markets. Republicans are expected to gain ground. The Dow is up 100 points. No economic data will be released today. The FOMC meeting announcement will be released tomorrow around 1:15.

Rates jumped up today. MBS prices reacted to today's economic data in the expected direction on both the upside and the downside. Weaker than expected Personal Income data lifted MBS markets early. When ISM Manufacturing came in higher than the consensus forecast, however, MBS markets moved lower for the rest of the session.

Tomorrow, no economic data will be released. Early election results may influence MBS prices during the session. The important FOMC meeting announcement will come out on Wednesday. The next couple of days may continue to be highly volatile.