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Friday, October 12, 2007

ECONOMIC DATA / NEWS

September retail sales were the data for which everyone has been waiting all week.  They came in up 0.6% overall, and up 0.4% excluding autos.  This is better than economists’ average expectations. As you can see there doesn’t seem to be much reaction from traders to data at all. The strength of the retail sales numbers has probably put some traders and investors at ease.

Inflation data has taken a back seat to economic growth indicators, but it still plays a role in the value of bonds.  September’s PPI was noticeably up coming in at 1.1%.  Core PPI dipped by 0.1%.  Overall PPI was higher due to the huge rise in oil prices last month.  Because Core PPI was low at 0.1%, that should help bonds currently it is keeping them just about even with the open.

Consumer spending accounts for more than two-thirds of the economy, which is why traders pay so much attention to the number. The University of Michigan sentiment came in off expectation of 84.0, at 82.0.

The stock market is seeing modest gains on the day and is not giving back any of the gains from yesterday. This is partially due to some higher third quarter earning numbers and takeover bid announcements.

TECHNICAL ANALYSIS

We did get a strong late rally in MBS prices yesterday, which was even better than we were expecting moving us up back of above both the 50 and 200-day moving averages. The FMNA 30-YEAR 6.0% currently flat on the day and is holding about the support level of 99.78, and we have room to move higher based on the next resistance level. Looking at stochastic we are in over sold territory and should be seeing an upward trend.

The 10-year Treasury yield is holding around 4.66%.  Its stochastic are still into oversold territory and have spend most of the morning moving side ways, so we should see yields head lower shortly.

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