Housing data was mostly positive this morning (READ MORE) but markets are reeling from mixed earnings reports and weak consumer confidence. Three hours into the session, all three major indexes are trading lower, following 11 days of rapid gains.

As of 12:30, the S&P 500 is the worst of the bunch, down 1.04% at 972, while the Dow is trading 0.8% lower at 9035, and the NASDAQ has fallen 0.7% to 1954.

Lower stock prices have helped benchmark Treasuries rally. Currently the 10 yr Treasury note is up 23/32 in price, yielding 3.63%. Increased demand for risk averse assets has allowed several lenders to publish lower mortgage rates already today.

IBM Dishes out a Billion: IBM, the world's largest computer company, plans to shell out $1.2 billion to purchase SPSS, the analytics software and solutions provider. SPSS Chairman, CEO & President Jack Noonan released a statement calling the deal “a highly-complementary move from both a technology and a market position perspective.” 

Earnings Recap: 

Oil giant BP said Q2 earnings were cut in half compared to last year due to the massive slide in oil prices. CEO Tony Hayward said seemed optimistic when he said in a statement that energy demand was now stabilizing, yet markets couldn’t have been happy when he added: "We see little evidence of any growth in demand and expect the recovery to be long and drawn out."

US-based oil refiner Valero Energy also said revenue was halved from Q2 2008, but its loss was slightly less than expected. 

Just to rub it in a bit, crude oil futures fell close to 70 cents this morning to $67.70.

Textbook publisher McGraw-Hill said Q2 earnings fell 23% owing to restructuring costs and broad-based weakness in the economy. McGraw-Hill also cut its full-year forecast down lowered its revenue outlook. 

Data Recap:

At 9:00 ― Seasonally unadjusted data indicated that home prices improved for their fourth consecutive month in May but remain about 17% lower than one year ago, according to the S&P Case-Shiller Home Price Index.

The 20-City Composite is 17.1% lower, compared to May 2008, which is the slowest annual decline in close to a year. In April the decline was 18.1%..

Home prices in May 2009 are at levels last seen in mid-2003, “indicating that the three years of appreciation that occurred from 2003-2006 were all given back in the following three years,” said a Case-Shiller press release.

“The crux of this report is clearly that the tone in U.S. housing market activity is beginning to improve dramatically, said TD strategist Millan Mulraine. “Indeed, even though prices continue to fall, the pace of decline is undoubtedly diminishing, and one suspects that it will only be a matter of time before a firm bottom is formed on U.S. home prices.”

Since prices peaked in Q2 2006, the 10-City Composite has fallen by a staggering 33.3%.

At 10:00 ―  The tug-of-war between rising unemployment and rising stock prices was won by the former this month as Consumer Confidence fell for the second month.

The Conference Board measure of confidence fell to 46.6 in July, down from 49.3 in June. Leading the drop was a fall in the expectations component from 65.5 to 62.0, while the present situation component continues to report deep pessimism amongst consumers with a 23.4 reading, down from 25.0 last month.

“The decline in the Present Situation Index was caused primarily by a worsening job market, as the percent of consumers claiming jobs are hard to get rose sharply,” said the Conference Board’s Lynn Franco. 

The closely-watched component tracking the labor market outlook was mixed. Respondents expecting more jobs in the months ahead decreased to 15.0% from 17.5%, but those expecting fewer jobs decreased to 26.3% from 27.6%. 

“The state of the labor market in July is particularly unclear, which raises the importance of the July payroll report,” said analysts from RDQ Economics. “The labor market is the Achilles heel of the recovery and this report on consumer confidence is slightly unsettling for our case that the economy is shifting from recession to a tepid recovery.”

At 1pm the Treasury Department will auction $42 billion 2 yr notes. Check the MBS Commentary blog ofor results.