Mel's Blog

Mortgage Bonds are a little lower and Stocks are trading higher to start the week.  Friday's speech by Ben Bernanke didn't offer any clues as to the Fed's next move so you can count on this Friday's Jobs Report having an influence on whether the Fed cuts and how deep they go as the Jobs Report is the last big report before the Fed decision on September 18th.  I continue to feel that there is a very good chance of a Fed cut. 

"Izzy", also known as the ISM Manufacturing Index, was reported at 52.9 for August, which was essentially in line with expectations.  Values over 50.0 indicate economic growth while those below 50.0 show contraction.   Traders were bracing for a very soft number, so stocks improved and bonds worsened a bit after the release.  In other news, Construction Spending for July was reported slightly below expectations and the markets had little reaction to the report.  

The remainder of this week brings some mid-level reports like the Pending Home Sales report tomorrow and the ISM Services Index on Thursday.  However, the big release of the week is Friday's Jobs Report for August.    

For now, the path of least resistance for bonds is lower.  This is why I have a bias towards locking.

Take a look at the chart below - Bonds continue to trade in a sideways direction between a descending Upper Trend Line and an ascending Lower Trend Line.  Bonds are headed into the apex of an angle where these two lines intersect and as prices get closer to this intersection, the greater the chance is for a strong breakout move to occur.  Friday's Jobs Report may just be the catalyst to propel Bonds out of this range.

-----------------------