This morning we got the release of the monthly retail sales figures and they were disappointing, but I am sure this isn't a shock to anyone. Economists were expecting a -2.1% drop but the actual number came in at -2.8%. When excluding auto sales, economists where expecting a -1.2% drop but the number was much lower at -2.2% which is the biggest drop in 28 years. We also had the release of import prices which also showed one of the largest month over month declines at -4.7% which is the largest drop in 20 years.
Mortgage backed securities sold off big time late yesterday as the Dow was rallying. When looking at a graph of the Dow and mbs, it is amazing to see how at roughly 1pm, the Dow started a huge rally coming off the lows of down about 300 points to close up over 500 points and at the same time mbs fell from their highs to where they closed at the lows of the day. Basically what this shows is investors where selling fixed income investments to free up cash to invest in equities.
So far this morning, we have recouped more then half of what we lost yesterday; meaning rates should be relatively the same today. Since the open, mbs have remained in a tight trading channel. We still have very tough resistance overhead which will be very difficult to break through. This resistance has been tested at least 4 times over the past month, just to knock us back down each time. We track mortgage backed securities because they are what determine interest rates on mortgages. As the price of mbs' goes up, mortgage rates go down and vice versa. MBS will constantly go up, then go down, then go up, etc… much like a FM radio wave. The key for anyone looking at securing a new mortgage is to lock your rate at the top of the current trading zone. However, mbs pricing is not publically available, which makes it crucial to work with a professional who has access to mbs pricing and can advise you on the best time to lock your interest rate.
In other related news, Ben Bernanke gave a sppech today at the ECB Conference. Nothing shocking from his speech, he says some improvement in credit markets but still a ways to go. We still get one more economic report today at 10 eastern, consumer sentiment. I bet most of us can predict right now that the consumer is not feeling to good about how the economy is going, so this report will probably have no impact on the markets.
If we see a big move in the markets today, we will post back. It appears the best day this week for locking was late on Wednesday. If you are not locked in on your rate today, it appears that you can float for now. Currently we are about 14 ticks away from the top of the current trading zone and the tough overhead resistance. Once we get back to this ceiling, that will be the time to lock your rate as it will be extremely difficult to break through to even lower rates.