Market Update Friday October 31st 2008

Today brings us an action packed day for economic reports.
Bonds are improving sharply, after receiving some good news on inflation this morning. The Personal Consumption Expenditure Index, which is the Fed's favorite gauge of inflation, showed that inflation concerns have begun to ease, due to falling Oil prices and weakness in the economy. The day is still early and usually Friday's are not the friendliest of days to mbs; however, we have had about 7 very bad days in a row so we are due for a positive day.

The reports
1. Personal Spending, economists expecting -.1%, but number came in worse at -.3%, good for mbs

2. Personal Consumption Expenditure, which is a gauge of inflation on the consumer level and the feds favorite, the number came in at a .2% reading. The year over year reading is currently at 2.4% which is higher then where the fed would like it to be. This is bad for mbs, but it appears the market is discounting this report due to the fed report we got earlier in the week where they basically said inflation is of no worry. Remember, this report is backwards looking as it measured inflation last month.

3. Employment Cost Index, economists expecting a .7% reading and it came in right where expected.

4. Personal Income, economists expecting a .1% increase, but the number came in higher at .2% increase.

5. Chicago PMI, economists expecting a 49.7 reading, actual number came in much worse then expected at 37.8, good for mbs.

6. Consumer Sentiment, economists expecting a 57.5 reading, actual number came in at 57.6.
Busy day as far as economic reports and all in all, pretty positive for mbs. We are getting tame inflation readings and oil is declining in price today as well.

Overall, Mortgage Bonds opened higher this morning, after holding above an important floor of support yesterday. As for locking a rate, today looks like a good day to be floating.

Cheers,

Ian Bennett
Mortgage Banker