MBS weaker

Tuesday, November 13, 2007

ECONOMIC DATA / NEWS

It’s impressive when one company is so large that it can move the markets all by itself.  Well, that’s how big Walmart is.  They reported stronger than expected earnings in the third quarter.  And, CEO Lee Scott predicts a successful holiday season for the company.  Earnings from other retail companies have been missing estimates lately, and many investors fear, especially with oil and gas prices rising, that consumer spending could be worse than normal, leading to dismal earnings from retailers.  Walmarts confident position is being reflected in the markets as the Dow has jumped 126 points, and is back over 13,000.

Thankfully, it doesn’t look like this is the week that oil will top $100.  Prices have slipped back to $93.56, but falling under $90 may be difficult, now that there is psychological support at that level.  Gas prices have risen 40 to 50 cents per gallon in most parts of the country, and this raises concerns about both higher inflation and slower economic growth.  If oil prices are able to fall below $90 again, that would take a significant amount of pressure off gas prices.

The rest of the week is packed with some big reports, including retail sales, inflation data, and industrial production.  Even the foreign investment numbers could affect the markets, since they were negative last month for the first time in 9 years.  If foreign investment doesn’t make a rebound, the value of the dollar and the values of U.S. bonds may take a hit.

TECHNICAL ANALYSIS

The FNMA 30-year 6.0% is flat today, because it is stuck at the 10-day moving average.  This marks the sixth day in a row that we’ve traded below this line.  The 100.62 level has become obsolete as a support or resistance level.  We’ll leave it on the chart today for reference purposes, but it can be ignored at this point.  We’re still range bound between the 10 and 25-day moving averages, with the 25-day moving average providing moderate to strong support at 100.57.

The 10-year Treasury yield has created a new support level at 4.20%, which is a two year low.  It traded down to this point last Friday as the stock markets suffered substantial losses.  This morning it has bounced higher to 4.25%.  There could be some weak resistance from 4.30% for psychological reasons, and then moderate resistance from the 10-day moving average at 4.33%.  But, the stochastics are deep into overbought territory, so the yield could climb even higher than 4.33% in the short-term.

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