Mel's Blog

A tame read on core consumer inflation has helped Bonds hold their ground in the face of strong stocks so far this morning.  The Core Personal Consumption Expenditure (PCE) Price Index was reported at a soft 0.1% for June, which was lower than expectations of 0.2% and leaves the year-over-year Core PCE at 1.9% and within the Fed's target zone of 1 - 2%.

Stocks are trading higher this morning, thanks in part to General Motors (GM) and Dupont which reported better than expected earnings. 

Here's a very interesting news story.  The Bureau of Economic Analysis (BEA) announced higher revisions to prior year's personal savings rates and this was based on more complete data.  Wow.  In 2004, the personal savings rate was revised to 2.1% from 2%.  In 2005, was raised to 0.5% from a negative 0.4% and last year was moved to 0.4% from a negative 1%.  So yes, essentially for the past couple of years the BEA has reported many months with a negative savings rate when they were actually positive.  Today's report showed the current savings rate at 0.6%.  The positive savings rate is good news, but doesn't replace the need for we as mortgage planners to structure debt in such a way that it helps people effectively prepare for retirement and college costs.

There were quite a few economic reports released this morning, but there was little impact on Bond prices.  Personal Income, Personal Spending, and the Employment Cost Index (ECI) were essentially reported in line with expectations.  Chicago Purchasing Managers Index (PMI) for July was reported at 53.4, which was lower than expectations of 58.5.  The Consumer Confidence Index for July was reported at 112.6, which was far hotter than expectations of 105.0 and the highest reading post 9/11.   Construction Spending was reported at -0.3%, which was below expectations of 0.2%.

Mortgage Bonds are trading in a tight 23bp range between a ceiling of resistance at the 50-day Moving Average, presently at $98.96 and a floor of support at the 25 and 40-day MAs at the $98.73 level.  We advise cautiously floating as the Bond trades within this range.