Market Update

FNMA 30-YR 4.0%

Previous close 98.810
Opened Up 0.19bp @ 99.000

Key Economic Data:

EUR / USD 1.3595 Down 0.0043
USD / JPY 82.4505 Down 0.0750
GBP / USD 1.5764 Down 0.0224

OIL 86.63 Down 1.24
Gold 1,327.50 Down 17.00

Key Economic News:

9:00: Case-Shiller home price...another significant decline. We estimate a 0.5% drop in the seasonally adjusted month-on-month measure, vs. a -0.8% expectation for the consensus. July through October featured four consecutive drops, with the last two about a percentage point each.

10:00: Conference Board's consumer confidence index...perking up? We and consensus look for a slight improvement in the December reading of consumer confidence (to 53.5 and 54 respectively), from 52.5 reading in November. Historically the responses on the job market have been fairly well correlated with the unemployment rate, so they will particularly interesting given the notable improvement in the unemployment rate in December.

10:00: FHFA home price index...This conventional mortgage home price index (a narrower focus than the Case-Shiller report) is expected to be flat in December after a surprising 0.7% increase in November.

10:00: Richmond Fed survey...another regional manufacturing survey, this one canvassing both manufacturing and service-sector firms. The consensus forecast (for the manufacturing portion of the report) looks for strength to continue, with a reading of 22 expected vs 25 for the previous report.

17:00: ABC consumer comfort index...still in the doldrums. After setting a two-year high of -40 two weeks ago, this index slipped back to -43 last week, echoing weakness in other measures of confidence such as the mild setback reported for the Reuters/Michigan survey for early January.

21:00: President Obama delivers his State of the Union Address to Congress. The President is expected to focus mostly on economic issues, and a specific emphasis on tax reform-and in particular, corporate tax reform-and the need to balance near term increases in federal investment with medium term spending cuts. If the speech follows the usual pattern, it is likely to focus on concepts than specifics, so few detailed proposals should be expected, particularly in the area like corporate tax reform which is at an early stage of debate and in any case doesn't lend itself to a nationally televised address to Congress. On spending cuts, specifying a target is possible, though here the President may lack incentive to do so, given that the House of Representatives will pass a resolution today intended to bring spending down to 2008, far greater than the President is likely to support. The President does not look likely to make major new proposals on entitlement reform; the recent health reform law is still in the process of being implemented, complicating new proposals in that area, while reports indicate that he will not endorse his fiscal commission's proposal to raise the Social Security retirement age, as some had speculated late last week.

Advice:

With Housing expected to come in weaker, but Consumer confidence expected higher. Today will probably trade in a narrow range.

I would float today.