After the three day week-end treasuries opened better this morning, at 8:45 the 10 yr note back testing its five week resistance levels at 3.29% with mortgages off .06 bp from Friday's close. At 8:30 the Fed's NY Empire State manufacturing index, expected at 12.0 was almost right on at 11.92 frm 9.89 in Dec; the new orders component increased to 12.39 frm 2.03, employment index at 8.42 frm -3.41 and prices pd index at 35.79 frm 28.11 (any index over zero is considered expansion, under zero contraction). Overall it didn't garner any interest among traders in rate or equity markets.
The Jan NAHB housing market index at 10:00 was expected unchanged at 16, it came at 16, the third month in a row it has been at 16---a very weak reading.
Once again, right on queue, early trade this morning had the 10 yr note +11/32 at 3.39% and mortgage prices +4/32 (.12 bp). By 9:30 the 10 yr unable to break the wall of resistance at 3.28%-3.25% rate flipped; the 10 yr -10/32 at 3.37% and mortgage prices -14/32 (.44 bp). Any pricing from lenders prior to 9:30 is likely to be re-priced. The DJIA opened +13; the stock market being impacted some early on new Steve Jobs will take a leave due to his health.
A four day work week with not much data, what there is is mainly on the housing sector.
7:00 am weekly MBA mortgage applications
8:30 am Dec housing starts (-1.0%)
Dec building permits (+4.4%)
8:30 weekly jobless claims (-20K to 425K, con't claims 3.90 mil frm 3.879 mil)
10:00 am Dec existing home sales (+2.5%)
Dec leading economic indicators (+0.6%)
Jan Philadelphia Fed business index (20.5 frm 20.8, revised from 24.3 originally released last month)
Are you watching Barney and Chris? Pres Obama has ordered a complete review of all regulations to remove or overhaul those that inhibit economic expansion without helping consumers, advancing his outreach to the business community. Obama wrote in an opinion piece in the Wall Street Journal today that he’s mandating “a government-wide review of the rules already on the books to remove outdated regulations that stifle job creation and make our economy less competitive.” He said the initiative is part of an executive order he will sign today codifying a “balanced” approach to regulation. “This order requires that federal agencies ensure that regulations protect our safety, health, and environment while promoting economic growth,” Obama wrote. “We are seeking more affordable, less intrusive means to achieve the same ends.” Since the big recession ended the last Congress led by Barney Frank and Chris Dodd went wild with new regulations, many added in a mood of panic and ignorance, with little understanding about consequences. The President is moving away from big government, realizing that citizens have had a gut full of Washington, we say hooray. Not a watershed but a step in the right direction.
We call your attention to the charts; the 10 yr yield chart clearly shows that every time the yield falls to 3.29%-3.25% any buying dries up and traders are free to sell. On the MBS FNMA 30 yr chart the technicals are better than the treasury note but won't improve much as long as the 10 yr fails at resistance. The MBS is holding its 20 day average but failing when the price moves to the 40 day average; the two averages are converging, something has to give.
So far this morning the interest rate markets have demonstrated high volatility; the 10 yr yield spiked up 8 basis points in fifteen minutes between 9:10 and 9:20, mortgage prices fell 14/32 (.44 bp) in the same timeframe. Some rebound at 9:35 but still weaker than the opens this morning.
Prior to 8:30 the rate markets were lower in price; the 10 yr -6/32 and mortgage prices -5/32 (.15 bp). At 8:30 two very key data points pushed prices and rates back to unchanged briefly. Dec retail sales were weaker than expected, up 0.6% against +0.7% thought, ex auto sales up 0.5% with forecasts of +0.6%, ex autos and gasoline +0.4%. One of the keys to the optimistic outlook for this year is consumer spending that is expected to increase; the Dec sales while not bad were not as strong as thought and leads to concerns that Jan won't be strong either. We have noted in previous comments that we are withholding our judgment on 2011 until we see how consumers are doing in Jan after the Christmas shopping.
Also at 8:30 Dec consumer price index, expected up 0.4% increased to 0.5%, ex food and energy up 0.1% in line with estimates. The headline CPI was the highest since June 2009. yr/yr CPI +1.5%, ex food and energy +0.8%. Inflation so far remains subdued but markets will still worry over it.
More data at 9:15. Dec industrial production expected +0.5% jumped 0.8%. Capacity utilization in Dec was expected at 75.6%, it increased to 76.0% the highest factory use since Aug 2008. Nov use was revised from 75.2% to 75.4%. Prior to the two reports the 10 yr note was yielding 3.29% and mortgage prices were up .12 bp. Rate markets moved slightly better on the initial reaction, a little surprising given that both were better than estimates. At 9:20 the 10 yr yield at 3.276% and mortgage prices +.15 bp.
At 9:55 the U. of Michigan consumer sentiment index, expected at 75.0 frm 74.5, was lower at 72.7---very disappointing. The current conditions index fell to 79.8 frm 85.3 at the end of Dec; the 12 month outlook however jumped to 87 frm 79. The initial reaction lent support to the bond and mortgage markets.
Finally, at 10:00 Nov business inventories, expected +0.7%, came at +0.2%. Sales were up 1.2% with a 1.25 month supply from 1.27 months in Oct.
The two reports at 9:55 and 10:00 added more buying in treasuries and mortgages sending the 10 yr note to the very critical 3.25%/3.26% level and mortgage prices +25 bp on the day slightly better than at 9:30.
European stocks retreated for a second day, led by a selloff in commodity producers, after China moved to cool its overheating economy. Asian shares and U.S. index futures fell. Inflation in Germany, Europe’s largest economy, accelerated to the fastest pace in more than two years in December, data from the Federal Statistics Office in Wiesbaden showed today. European Central Bank council member Axel Weber said the economic outlook in the euro area has improved markedly and inflation risks “could well move to the upside.” (Bloomberg News)
Crude oil and gold are trading lower this morning on China's moves to cool their economy raising their bank reserves; the declines helping the interest rate markets.
Markets today will have to consider that US markets will be closed on Monday (MLK). Generally major moves are unlikely with a holiday that closes our markets.
The bellwether 10 yr note is now traded at its key five week resistance level at 3.26%, the lowest rate we have had since 12/20 when the note fell to 3.25% but closed at 3.35%. T As we have said, a close below 3.25% for the note will likely set up a nice improvement in mortgage rates. There is still a lot of trading left today, as noted in the hold/lock advise, today and Tuesday will be critical from a technical perspective.
Starting weaker today, after the 10 yr note once again fell to 3.28% on Monday yesterday selling put the yield back to 3.34%. The 10 is well defined now in a 20+ basis point range, on any rallies in the past month it finds heavy resistance at 3.28%/3.29% level (five times) and moves back up. This morning at 9:00 the 10 yr rate at 3.40%, moving back toward 3.50%. Mortgages this morning, following the 10 yr note, lower in price; down 9/32 (.28 bp). The stock index futures adding pressure in rate markets with key indexes early pointing to a strong opening at 9:30. At 9:30 the DJIA opened +60 points.
This afternoon's $21B 10 yr note auction and the stronger stock market this morning will likely keep the note and mortgages in check until the results of the auction are reported at 1:00. A good auction should support the note, a weak one will add more selling but will still keep the note and mortgages in their respective trading ranges.
Dec import prices were +1.1% about in line with estimates, non petroleum import prices up 0.4%; yr/yr import prices increased 4.8%, non petro +2.7%. Export prices were up 0.7% right on forecasts; yr/yr +6.5%, a record increase. No reaction to the data, it rarely gets much.
The weekly MBA mortgage applications index up 2.2% last week; the purchase index did decline 3.7% but re-fi index was up 4.9%. The average rate on a 30-year fixed loan dropped to 4.78% last week from 4.82% the prior week. The rate reached 4.21% in October, the lowest since the group’s records began in 1990. At the current 30-year rate, monthly payments for each $100,000 of a loan would be $523.46, or about $21 less than the same week the prior year, when the rate was 5.13%. The average rate on a 15-year fixed mortgage declined to 4.15%, from 4.23%. The rates include a 1.00% origination fee for 80% loans. The share of applicants seeking to refinance a loan rose to 72.1% last week from 71% the prior week.
The Fed's Beige Book will be released at 2:00; markets like it because of its detail but in terms of overall assessments on the economy nothing new is expected.
Later this afternoon at 2:00 Treasury will report the Dec budget balance, normally Dec has a surplus with end of yr tax payments. This Dec the budget is expected at a deficit of $80.0B. No market reaction is expected.
Prior to 8:15 this morning the interest rate markets were trading better; at 8:15 markets turned and selling pushed rates up and prices lower on treasuries and mortgages. The Dec ADP employment data was widely expected to show an increase of 100K jobs in the month; a blow out number, ADP said new jobs jumped 297K. Treasuries and mortgage prices immediately turned lower, the 10 yr note at 9:00 after being up 9/32 traded -17/32 with its yield up 7 basis point from yesterday's close, mortgage prices at 9:00 -12/32 (.37 bp). The ADP data was strong across the spectrum; small business jobs increased 141K, manufacturing jobs +26K and service sector up 270K. It was the largest increase on ADP data since ADP began reporting 22 months ago. Analysts immediately began revising estimates for the BLS data on Friday; prior to the ADP markets were expecting non-farm jobs on Friday to be up 132K with non-farm private jobs up 142K. Over the 22 months ADP has been reporting jobs only 5 times has the ADP estimate exceeded the BLS data. The only anomaly in the report this morning, it covered 5 weeks instead of the normal 4 weeks and may be over-stated with holiday hirings; nevertheless it was a huge surprise.
The reaction to the huge jobs jump sent interest rates up as you would expect; the 10 yr is still however confined to its 25 basis point range that has kept rates relatively stable for most of the last month. Mortgages getting slammed this morning, at 9:15 testing the first support at 98-31/32 (98.96 bp). The equity markets didn't get any traction on the jobs data, the key indexes opened lower at 9:30. Equity markets were very strong in Dec, likely anticipating better economic growth. After the strong moves in stocks investors are taking a breather but with today's ADP report it won't take long before more buying begins again.
At 10:00 the Dec ISM service sector index, expected at 55.7 frm 55.0, jumped to 57.1 the highest index read since early '06. New orders component increased to 63.0 frm 57.7, prices pd increased to 70.0 from 63.2 and employment index did fall to 50.5 frm 52.7. With interest prices already lower there was no additional selling on the 10:00 report.
The MBA released its Weekly Mortgage Applications Survey for the weeks ending December 24, 2010 and December 31, 2010. For the week ending December 24, 2010, the Market Composite Index decreased 3.9%. For the week ending December 31, 2010, this index increased 2.3%. Both week's results include an adjustment to account for the Christmas and New Year Day holidays. For the week ending December 24, 2010, the Refinance Index decreased 7.2% from the previous week and the seasonally adjusted Purchase Index increased 3.1% from one week earlier. The following week, the Refinance Index increased 3.9% and the seasonally adjusted Purchase Index decreased 0.8%. The refinance share of mortgage activity for the week ending December 31, 2010 was 71.0 percent, an increase from 70.3 percent for the week ending December 24, 2010. For the week ending December 24, 2010, the average contract interest rate for 30-year fixed-rate mortgages increased to 4.93% from 4.84%, with points decreasing to 0.63 from 0.96 (including the origination fee) for 80% loans. For the week ending December 31, 2010, the average contract interest rate for 30-year fixed-rate mortgages decreased to 4.82% with points increasing to 1.11. For the week ending December 24, 2010, the average contract interest rate for 15-year fixed-rate mortgages remained unchanged at 4.22%, with points increasing to 1.34 from 1.19 (including the origination fee) for 80% loans. For the week ending December 31, 2010, the average contract interest rate for 15-year fixed-rate mortgages increased to 4.23% with points decreasing to 1.00.
The ADP report this morning, if supported by the BLS data on Friday, will likely cap any significant improvements in interest rates. The economy is improving, most every economic report has been stronger than economists and analysts' forecasts. The rate markets will have a difficult time overcoming the economic improvement. We suggest homebuyers make their deals at these rates, the outlook for much lower interest rates is dimming daily.
Treasuries opened flat this morning, mortgages up 4/32 (.12 bp) at 9:00. Still trading in a 25 basis point yield range. The DJIA opening firmer again as most are now believing the economy will continue to improve this year. Technically, the 10 yr note still is unable to close below its 20 day average on the yield chart, but mortgages are performing better, now above its 20 day and possibly going to test the 200 day average.
Smaller U.S. companies are rallying the most since 2003 relative to the Standard & Poor’s 500 Index. That small companies are outpacing larger firms is a bet that the economy will strengthen and spur a third year of gains for investors. The Russell 2000 Index, comprised of stocks with a median market value of $528.5 million, rose 25% in 2010, beating the S&P 500 by 13%. Some analysts believe small companies are doing better because most of their sales are coming from US consumers rather than globally.
The Johnson Redbook retail sales for the week ending 1/1/11 showed yr/yr same-store sales rose 3.5% in the week, below the prior week but right in line with trend and pointing to a very positive 0.4% gain vs November. This latter reading points to a solid gain for the government's December ex-auto ex-gas category in what would be substantial evidence of consumer strength. The sales report is supporting a better open in the equity markets.
The DJIA opened +20 at 9:30, the 10 yr note -3/32 and mortgage prices +4/32 (.12 bp). Support in the interest rate markets may be coming from the view that stocks are currently over-valued even though the indexes continue to increase. We still hold a slight bearish outlook for the rate markets, although the market isn't as negative as it was in early Dec. Nevertheless, as long as the outlook remains positive for the economy it is unlikely that interest rates will decline much if at all.
The only data point today; Nov factory orders, were expected down 0.2%; as reported orders increased 0.7% frm -0.7% in Oct (revised frm -0.9%), ex transportation orders up 2.4%. The inventory to dales ratio at 1.28 months. Yet another data point stronger than expected. There was little immediate reaction to the report although rates have edged higher since 9:30.
At 2:00 this afternoon the FOMC minutes from the Dec meeting will be released. how the members debated the impact of QE 2 and what the Fed expects to do will get attention but not likely to have much impact on the markets.
Later this afternoon Dec auto and truck sales. 9.2 mil total is expected.
Courtesy of www.tbwsratealert.com
Last Friday in thin trading the bond and mortgage markets had a nice end of the year with good price gains, this morning with the new year under way the bond and mortgage markets started with selling taking most all of Friday's rally back. Now that the holidays are behind us markets are working back to normal with most all investors and traders back on the job. The last two weeks of Dec were marked with high volatility in the rate markets, after all was done the bond market was about unchanged in the period.
The equity markets started strong this morning continuing the increasing view that 2011 will be economically better than 2010. At 8:45 the DJIA index traded +84 with the other two key indexes also strong. Stocks also rose on Europe’s benchmark gauge to its biggest advance in almost two weeks. European manufacturing expanded more than initially estimated in December. China’s purchasing managers’ index fell for the first time in five months, suggesting efforts to ,cool the economy are working. Markets in Australia, Japan, New Zealand, Thailand, China and Vietnam were closed today.
Two economic reports at 10:00 this morning; Nov construction spending expected up 0.2% increased 0.4%. The Dec ISM manufacturing index hit at 57.0 from 56.6, expected at 57.3. The sub components were mixed; new orders increased to 60.9 frm 56.6, prices pd increased to 72.5 frm 69.5 and employment declined to 55.7 frm 57.5. The initial reaction wasn't much but the bond and mortgage markets got a minor boost while the DJIA dipped a couple of points; both markets were little impacted. On the indexes any reading over 50 is considered expansion, under 50 contraction; the higher the index the stronger.
This week's economic calendar:
10:00 am Nov factory orders (-0.2%)
2:00 pm FOMC minutes from Dec 15th meeting
3:00 pm Dec auto and truck sales (3.7 mil autos, 5.3 mil trucks)
7:00 am weekly MBA mortgage applications
8:15 am ADP private jobs report for Dec (+100K)
10:00 am Dec ISM services sector index (55.7 frm 55.0 in Nov)
8:30 am weekly jobless claims (+17K to 405K; con't claims 4.07 mil frm 4.128 mil)
8:30 am Dec employment report (non-farm jobs +132K, private non-farm jobs +142K, unemployment rate 9.8% unchanged)
3:00 pm Nov consumer credit (-$2.5B)
The overwhelming consensus as the year begins is that the equity markets will have strong gains, commodity prices will continue to increase with some talk that crude oil will climb over $100.00, and money will continue to exit fixed income treasuries in favor of stocks. As noted previously we are more skeptical about the economic outlook than the consensus. The economy will do OK but we expect consumers won't meet the lofty expectations on spending with the housing sector remaining soft and unemployment staying high through most of the year. Every year at the start the outlook is optimistic; lets wait and see what consumers do in Jan and Feb. Consumers will more likely save than spend, the demographic changes with 10K baby boomers a day turning 65, a trend that will continue for the next 10+ years and spending by the huge population of boomers won't meet the expectations currently out there.
The Republicans are now in control of the House and have more strength in the Senate. How the two political parties get along and confront health care, the federal debt limit, spending cuts in the next couple of months will set the tone for the next couple of years.
BofA resolved disputes with Freddie Mac and Fannie Mae by agreeing to pay more than $2.6B to settle claims that it sold loans based on faulty information. The fourth-quarter results would include a $2B impairment charge and a $3B provision. The bank faced $12.9B in unresolved put back demands on soured mortgages, with about half related to government-sponsored entities. The stock is rallying this morning in the settlement.
Starting better again today as short-covering drives rates back down. The 10 yr note hit a high at 3.60%, at 9:00 this morning it was at 3.28%. It took a lot longer than we expected but finally the oversold market is doing what it should given the technical factors. No data today or tomorrow; Wednesday and Thursday do have key reports. Trading this week should be light with not much change, the large institutional investors and mutual funds have closed books for the end of the year and normally don't like to do much until the new year.
This week's economic calendar:
8:30 am Q3 final GDP (+2.7% frm +2.5%)
10:00 am Nov existing home sales (+4.8% to 4.65 mil units annualized)
FHFA Oct home price index (N/A)
8:30 am weekly jobless claims (+4K to 424K; continuing claims 4.075 mil frm 4.135 mil)
Nov personal income and spending (income +0.2%, spending +0.5%: personal consumption index +0.1%)
Nov durable goods orders (-1.0%; ex transportation orders +1.0%)
9:55 am U. of Michigan consumer sentiment index (75.0 frm 74.2)
10:00 am Nov new home sales (+6.6% to 303K units)
The current bounce in prices (lower rates) should not be taken lightly; suggest taking advantage of it and get deals nailed down that were caught in the spike up in rates. The outlook continues to be negative for interest rates; as long as markets are expecting a strong economic improvement in 2011 as they do now, lower rates are not likely. As we see it now, the 10 yr note may decline to 3.17% where it will likely meet resistance; presently the 10 yr is trading at 3.28%. If the 10 does make it to 3.17% mortgage rates will also decline by 10 more basis points. Thin markets over the next two weeks have the potential of becoming choppy and volatile, doesn't take a big trade to move the markets.
Looking to next week, Treasury will be back borrowing; Monday 2 yr note, Tuesday 5 yr note and Wednesday 7 yr note.
The stock market opened better this morning, the dollar a little better but relatively unchanged.
In Asia last night more US treasury selling, by the time Europe opened a little buying. By 8:00 this morning the 10 yr note was better by 12/32 and mortgage prices were up 12/32 (.37 bp). At 8:30 two data points; Nov consumer price index was right on, up 0.1% overall and +0.1% with food and energy removed, yr/yr overall +1.1%, yr/yr core +0.8%. The NY Fed Empire State manufacturing index jumped from -11.14 in Nov to +10.57 with estimates of an increase of 3.0; new orders jumped to 2.60 frm -24.38, employment component at -3.41 frm +9.09. The past two months the NY manufacturing reports have been so volatile we don't give it much attention; any index over zero is considered growth, under zero contraction. Some immediate selling on the data but by 9:00 treasuries and mortgages were holding better.
At 9:15 Nov industrial production expected up 0.3%, increased 0.4%. Nov factory usage increased to 75.2% the highest utilization in almost two years. Economic data continues to exceed forecasts.
At 10:00 the Dec NAHB housing market index was expected at 17 frm 16 in Nov; was unchanged at 16. That it wasn't better has added a little increase in prices of treasuries and mortgages.
Yesterday the 10 yr note hit 3.50% briefly before backing down to close at 3.46%, mortgage prices were slammed again yesterday, down 39/32 (-128 bp). Mortgage rates have increased 100 basis points over the past four weeks. Interest rates climbing as rapidly as they have are confirmation that the end of inordinate low rates is over. Markets are increasingly more optimistic that 2011 economic growth will be stronger than what had been expected. Expectations until a couple of weeks ago were for GDP growth in 2011 to be 3.0%, now the consensus is for growth to be at 4.0% and a decline in the unemployment rate from the present 9.8% to 8.7% by the end of 2011. The extension of the Bush tax cuts, the 2.0% cut in workers contribution to social security will put more cash in consumers' pockets. Also driving rates higher, the end of safety moves generated by issues in Europe and in the US and Congress's unwillingness to cut federal spending. The $858B tax cut bill now moving through Congress is yet one more Christmas tree filled with earmarks (pork), politicians can't do anything that doesn't end up in more unnecessary spending. The fiscal budget bill also moving through Congress is hung with earmarks driven by Democrats and with not a lot of strong resistance from Republicans. Investors in fixed income are not willing to hold low rate treasuries with the deficit increasing, inflation concerns, and a better economic outlook.
The MBA today released its Weekly Mortgage Applications Survey for the week ending December 10, 2010. The Market Composite Index, a measure of mortgage loan application volume, decreased 2.3% on a seasonally adjusted basis from one week earlier. On an unadjusted basis, the Index decreased 2.7% compared with the previous week. The Refinance Index decreased 0.7% from the previous week. This is the fifth straight weekly decline for the Refinance Index. The seasonally adjusted Purchase Index decreased 5.0% from one week earlier. The unadjusted Purchase Index decreased 8.6% compared with the previous week and was 16.6% lower than the same week one year ago. The four week moving average for the seasonally adjusted Market Index is down 4.7%. The four week moving average is up 2.6% for the seasonally adjusted Purchase Index, while this average is down 6.8% for the Refinance Index. The refinance share of mortgage activity increased to 76.7% of total applications from 75.2% the previous week. The average contract interest rate for 30-year fixed-rate mortgages increased to 4.84% from 4.66%, with points increasing to 1.34 from 0.94 (including the origination fee) for 80% loans. This is the highest 30-year fixed-rate observed in the survey since the beginning of May 2010. The average contract interest rate for 15-year fixed-rate mortgages increased to 4.21% from 3.98%, with points increasing to 1.28 from 0.97 (including the origination fee) for 80% loans. This is the highest 15-year fixed-rate observed in the survey since the beginning of June 2010.
So far so good today; the bond and mortgage markets are holding slight gains after the 10 yr note touched 3.50% yesterday. Will it hold for now? Hard to say, the market has resisted any attempt to rally on short-covering even though it remains extremely oversold technically. Any improvement in rate however will not be much given the underlying fundamentals of the increasing economic outlook for 2011. End of yr selling that usually occurs in Dec may not be over. It is highly unlikely that any rebound will be sufficient enough to change the bearish trend.
A little choppy very early this morning; the bond and mortgage markets started a little lower in price, took a quick hit on 8:30 data then just as quickly rebounded to sit lose to unchanged by 9:00 am. The bellwether 10 yr note at 9:00 traded weaker, -11/32 at 3.32% +4 bp (see below for 10:00 prices). Two key data releases at 8:30; Nov retail sales were stronger than expected, up 0.8% overall and up 1.2% when auto sales are removed. Oct retail sales were revised from +1.2% to +1.7%. Retail sales strong adds to the view that the consumer is beginning to spend more. Pulling against that; early this morning Best Buy came with its earnings that were substantially lower than expected sending its stock price reeling. Also at 8:30 Nov producer price index; it was stronger than expected and added more concern that inflation levels may be increasing. Overall PPI +0.8% and without food and energy +0.3%; yr/yr overall PPI +3.5% less than in Oct, ex food and energy +1.2% yr/yr. Treasuries remain soft this morning but mortgage prices have managed to trade better. Both markets very oversold as we have been saying for days. Likely the markets will be relatively quiet this morning and into early afternoon prior to the FOMC policy statement at 2:15. Treasuries being pressured a little on the higher PPI, continuing to worry that inflation may be increasing. The more fundamental inflation gauge is due out tomorrow when Nov consumer price index is released. Nov retail sales were also better than expected adding to pressure in the rate markets. At 10:00 Oct business inventories increased 0.7%, less than the 1.1% expected; sales were up 1.4% with an inventory to sales ration at 1.27 months from 1.28 months in Sept. The initial reaction added more pressure on the 10 yr note and mortgage prices slipped a little. Confidence among U.S. small businesses rose in November to the highest level since the recession began three years ago as more companies projected the economy and sales will improve, a private survey found. The National Federation of Independent Business’s optimism index increased to 93.2, the highest since December 2007, from an October reading of 91.7. “It was encouraging to see substantial improvement in expectations for economic performance, critical if spending and hiring are to elevate beyond survival and replacement levels,” William Dunkelberg, the group’s chief economist, said in a statement. “Plans to hire, make capital outlays and invest in inventories all rose, albeit from historically low levels.” Not much is expected from the FOMC meeting today; the Fed isn't about to add to the $600B stimulus at this time, and very likely will face serious resistance next year from the Republican controlled Congress. There are a few key members that want to change the Fed's role and remove its mandate for full employment leaving the Fed's only mandate to control inflation. The present $600B QE 2 has not measured up to what Bernanke wanted, lower interest rates, increasing criticism from Congress and within the Fed itself will likely handcuff Bernanke unless the economy rolls over. Bernanke has said he is concerned that the present recovery may not be "self-sustaining". The point of QE 2 was to reduce interest rates; so far it has failed, the 10 yr note and mortgages since the Nov 3rd announcement of QE 2 have increased 80 basis points. Instead of lowering rates the move increased the view the economy would recover more rapidly and inflation concerns have increased sending rates higher. ---courtesy www.tbwsratealert.com