This morning we received economic data showing one of the largest drops month over month in consumer inflation. The Consumer Price Index fell by -1.0% and the core rate which strips out food and energy also fell -.01% with economists expecting a .01% rise. Before the data was released, mortgage backed securities where rallying, but after the data they quickly sold off. Usually, with the inflation data we received which shows inflation is not a concern, mbs should rally and move higher, but as said many times in the recent past we are not in normal times.
We also got some positive news on housing. Housing starts where expected to come in at 780,000 but the actual number came in higher at 791,000. We also got data on building permits which dropped 12% which is good news as less inventory of homes will help clear out the abundance of homes available for sale now. Later today we will get the minutes from the last FOMC meeting. After this mornings data, I do not see this release moving the markets in any meaningful way.
After a nice rally this morning which took mortgage backed securities well above the resistance that we have been fighting for the last few weeks, we are currently below that ceiling due to a rapid sell off. It still appears that this ceiling is going to keep rates from moving any lower then current rates until the end of the year. The good news is that we are at the top of the trading channel and have held at the top for the last week.
We will keep you posted if we see a move but it appears we are stuck in the current trading channel with very little likelihood of a break out to the top side and lower rates, but keep the faith