Waiting on the Fed

Friday, August 24, 2007

ECONOMIC DATA / NEWS

When we talked about home sales in June, we pointed out that those figures were based on sales originated in April and May.  Since buying activity is generally higher during the summer than most other times of the year, we expected that sales would increase as the summer moved forward.  According to the data from the National Association of Realtors, new home sales jumped to 2.8% to an annualized rate of 870,000.  Most economists had forecast a decline from June.  There is a good chance that August’s sales will be even stronger.  Existing home sales, which make up the bulk of homes sold, will be announced on Monday.

Durable goods orders are difficult to accurately predict because of their extremely volatile nature.  However, economists were not even close this month.  Most estimates were in the low to mid 1.0% range, but July’s durable goods orders rose 5.9%.  Oftentimes, the number is exceptionally high due to a massive increase in aircraft orders.  However, this time orders in almost all areas jumped.  Computers and other electronics rose 7.4%, and machinery orders were up 5.5%.  Most of the raw materials used to produce these items were also up for the month.

Next week gets a lot more exciting with data on inflation, consumer spending, and GDP being released throughout the week.

TECHNICAL ANALYSIS

The sideways trading in MBS has begun.  The FNMA 30-year 6.5% and 6.0% are both unchanged from yesterday.  The 6.5% has good support at 101.53, but it may get stuck under the 200-day moving average for the next few days at least.  Overall though, we’re still looking at an upward trend, and we expect this to continue throughout the remainder of the year.

The 10-year Treasury yield has really been bouncing all over the place.  It is back down to 4.62% this morning after trading as high as 4.71% yesterday.  The bond has had a tough time breaking the 4.61% support level, and it is starting to get away from the downward trend line.  Although there has been a lot of up and down movement, the pattern is beginning to turn sideways like MBS prices.

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