Market Update

FNMA 30-YR 4.0%

Previous close 98.970
Opened Down 0.09bp @ 98.875

Key Economic Data:

EUR / USD 1.3063 Down 0.0037
USD / JPY 83.1385 Down 0.4330
GBP / USD 1.5407 Up 0.0021

OIL 90.53 Up 0.05
Gold 1,378.20 Down 9.20

Key Economic News:

Three constructive reports for growth
Consumer spending was firm in November atop upward revisions to October, solidifying the case for 4%-plus real growth for this component of GDP in Q4. (overall GDP expected to be 3%.) Although income was slightly better than expected, the composition was soft with only a 0.1% increase in wages and salaries. Core PCE inflation reached a new year-to-year low of 0.8%.

Meanwhile, durable goods orders were much better than suggested by the drop in total bookings, as those declines were concentrated in aircraft and back data were revised up. Unemployment claims continue to suggest labor markets improvement with initial claims in line with expectations and continuing claims dropping further.

Key Numbers:
Durable goods orders -1.3% in Nov (mom, +10.4% yoy) vs. median forecat -0.5%.
Ex transportation +2.4% in Nov (mom, +12.7% yoy) vs. median forecast +1.8%.
Personal spending +0.4% in Nov (mom, +3.8% yoy) vs. median forecast +0.5%.
Personal income +0.3% in Nov (mom, +3.4% yoy) vs. median forecast +0.2%.
PCE core index +0.08% in Nov (mom, +0.8% yoy) vs. median forecast +0.1%.
Initial claims -3k to 420k in week ended Dec 18 vs. median forecast 420k.
Continuing claims -103k to 4.064 million in week ended Dec 11 vs. median forecast 4.105 million.

10:00: Reuters/University of Michigan consumer sentiment for Dec (fianl)...edging higher? The median forecast for this index is slightly higher than the preliminary figure reported nearly two week ago. The median expectation for inflation five to ten years ahead edged back down to 2.7%, the low end of an extremely tight range in which this indicator has fluctuated over the past year.

Median forecast (of 67): 74.5, ranging from 71 to 76.7; last 74.2 (Nov final).

10:00: New home sales for NOv...a bounce off the low? Sales of new homes fell to 238k in October, just 1k above the all-time low reached in May. We expect a small increase. but not one that would move sales outside the 282k-310k range.

Median forecast (of 69): +6.0%, ranging from +0.7% to +13.1%; last -8.1%.

16:30: Federal Reserve balance sheet...The balance sheet now shows a clear break-out from the $2.3 trillion that had prevailed during most of 2010. Today's data will continue that trend.

Advice:

With this information I expect the market to sell off today.

Short term lock, long term float.