The daily swings in the market are in full motion as we begin this holiday shortened week. Optimistic dialogue over the weekend regarding the possibility of a deal between the President and Congressional Republicans is impacting the markets this morning. Stocks are indicated higher while bonds, including mortgage-backed securities are trading down in either activity. Bond prices going down mean mortgage rates going higher.
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On the economic front, this week is not filled with much data of significance, though the reports coming today and tomorrow are of interest since they are housing related. This morning at 10 AM the existing home sales report will be released. In an improving housing market overall, this measure is the one about which some concern exists. Will the diminishing supply of homes for sale begin to impact the overall market? Tomorrow the housing starts report will be released. Continued strong numbers are expected here as consumers looking to buy a home have showed a strong preference for new construction.
I would not be surprised however if the optimism over the positive statements over the weekend related to the fiscal cliff turns to pessimism rather quickly. In my review of the weekend commentary I cannot find any concrete proposals that have been put forward by either side—in fact quite the contrary. It appears that both sides have decided to put off any further negotiations until after the Thanksgiving holiday and will use the time to try to refine their opinions and define their parameters for a deal. What I heard over the weekend was an expectation from each side that it would take a compromise by the other side to make a deal happen! Seems to me we have a long way to go!
Wednesday should be an interesting day for the markets as we get the weekly jobless claims report a day earlier than normal and the consumer sentiment report just before the biggest retail shopping season of the year. That could make for a very volatile day just before the holiday.