Morning Report - Party at the Fed

Vital Statistics:

	Last	Change	Percent
S&P Futures	1721.8	4.0	0.23%
Eurostoxx Index	2940.7	31.7	1.09%
Oil (WTI)	108.2	0.1	0.07%
LIBOR	0.25	-0.002	-0.89%
US Dollar Index (DXY)	80.2	-0.042	-0.05%
10 Year Govt Bond Yield	2.70%	0.01%
Current Coupon Ginnie Mae TBA	105	1.3
Current Coupon Fannie Mae TBA	104.2	0.0
RPX Composite Real Estate Index	200.7	-0.2
BankRate 30 Year Fixed Rate Mortgage	4.42

Markets are higher this morning after yesterday's furious rally on the Fed's decision to keep asset purchases in place. The 10 year had a trading range of over 30 basis points in yield yesterday. Initial Jobless Claims increased to 309,000. Bonds and MBS are up small.

The FOMC statement was obviously a surprise, and it is clear from the reaction in the markets that a LOT of people were leaning short heading into the announcement. What does that mean for rates going forward? The markets will now begin to fret about the December meeting, which isn't going to be bond bullish. I think if you are considering locking right now, you do it. 2.7% seems to be resistance on the 10 year, and we could be looking at a 2.7% - 3.0% trading range. At these levels, take the money and run.

The Fed's decision certainly provides support for the theory that the Fed was really targeting leverage with its announcement last Spring. The economic data has never supported a reduction of stimulus, and the Fed has been consistently too high with its economic forecasts. The thing is, they can't un-ring the bell - so people are not going to be piling into levered curve flattening trades. REITs have significantly de-leveraged. Mission Accomplished.

The Fed took down its forecasts again, with the 2013 GDP range now 2.0% - 2.3% from 2.3% - 2.6% in June. Unemployment's forecast ticked down as well, from a range of 7.2% - 7.3% to 7.1% to 7.3%. Ben Bernanke was asked in the press conference about the labor force participation rate and how it seemed to be driving unemployment. Bernanke acknowledged that there is more to the labor picture than simply the headline unemployment number, and also stressed that these are guideposts, not thresholds. In other words, if unemployment gets to their 7% target, but it is due to the wrong reasons (a drop in the participation rate), then the Fed may decide to remain accomodative. 

The beatdown goes on... Wells Fargo is cutting 1,800 jobs in its mortgage unit, in addition to the 3,000 announced earlier this year.