A MIXED BAG OF “GOODIES”…the past week had a little something for everyone, with news to please both Bull and Bear. The “see-saw” action resulted in some midweek movement, both up and down for mortgage interest rates. By the end of the week, mortgage interest rates ended unchanged to very slightly higher, exactly as predicted in last weeks forecast. Let’s take a look at the high points.

The Fed Meeting on Tuesday resulted in no change to the federal funds rate, remaining at a 45 year low of 1.00%. As usual, traders hung on every word of Greenspan’s statement. These oh-so-fascinating words caused a great deal of interest: “policy accommodation can be maintained for a considerable period”. Exciting? Sure was to bond traders, as it meant that the Fed is planning to keep rates low for the near future. Of even greater importance to bond traders was the Fed stating that the risk of inflation vs. deflation is now balanced. This is a move away from their previous concerns about deflation, and caused an afternoon sell-off in bonds.

Next, the bond market Bulls got happy on Thursday morning with the Initial Jobless Claims report, coming in with an increase in claims that was worse than anticipated. Shortly thereafter, the bond Bears were clawing right back at the Bulls once they heard Retail Sales numbers were stronger than expected. More good action for the bond Bulls came soon with Michigan Consumer Sentiment being reported at far below expectations.

SPEAKING OF RETAIL SALES AND CONSUMER SENTIMENT, WANT TO KNOW HOW YOUR HOLIDAY SPENDING LINES UP WITH WHAT THE REST OF THE NATION IS SHELLING OUT? DON’T MISS THE MORTGAGE MARKET VIEW BELOW…

The Bulls had the last laugh on Thursday afternoon, when the Dow closed above 10,000 for the very first time since May of 2002. The reason? Believe it or not, the minutes of the Fed meeting were released on Thursday afternoon, and this caused some market action. Remember how the traders were so interested in Greenspan’s every syllable? When the Fed indicated that rates would stay low for a "considerable period", no one really knew how long that would mean, but the meeting minutes indicated it could mean years. This indication that the Fed will not likely make quick or aggressive rate hikes anytime soon caused both the bond and stock markets to rally. But – trading on meeting minutes is a bit of a stretch to find some ground to trade on. So did the Bulls and Bears sit down together for holiday cocktails on Friday night and live happily ever after? Not quite yet. Read on.

On Friday the euphoria continued, but just as traders were looking to pack it in for the weekend, mortgage bonds started to sell off and finished the day flat. Why the late Friday fire sale? Bonds had shown good profits for the week, and were approaching a ceiling of resistance, illustrated below at the 200-day Moving Average. This spooked the traders as they also saw the upcoming Empire State Index on Monday, which surveys manufacturing executives in New York State. A strong number might pressure mortgage bonds, so it’s possible that bond traders felt some positive numbers were pending on Monday morning, and wanted to grab their gains before the weekend.

Take a look at the chart below. On the far right, Friday’s trading is illustrated as an interesting “plunger” shaped candle, where the top of the candlewick shows how high mortgage bond trading got before pulling back for the day, and finally closing at the bottom of the candlewick. So – Bulls or Bears – who will “take the plunge” next week? Overall, mortgage bonds are trading in a nice range between the 100 and 200-day Moving Averages as shown below, and it is expected that mortgage interest rates will be stable to slightly higher this coming week.

Is your holiday shopping all wrapped up for the year? Or are you one of those who love the adrenaline of last minute shopping, and haven’t even started yet? In either case, it’s clear that Americans are increasing their holiday spending over last year. The average holiday shopper will spend $835 this year, up from $722 in 2002.

“While the number has increased, we have not returned to the economic enthusiasm people showed in 2000, when the average shopper spent $1,220 on holiday purchases,” said Steve Rhode, president and co-founder of Myvesta, a financial education organization. “The increased amount is a reflection of the recent drop in the unemployment rate and good news on the robust growth of the economy.”

But – if you were hoping for that plasma TV from Aunt Millie in Oregon, you might be disappointed. People in the Western United States will spend the least nationwide, reporting anticipated spending of $574. Northeasterners will spend the most, averaging almost $1200. In the Midwest and South, holiday shopping should cost around $820 total per person.

Contrary to popular belief about female shopping habits, men are planning to spend more than women, with national averages of $882 for men and $792 for women.

Look to the younger generation for the good stuff under the tree, as 25 to 34 year olds reported planned spending of about $1250, the highest of any age group.

So if you’re done shopping and have your gifts all wrapped, labeled, and neatly stacked under the tree, congratulations. The rest of us admire, but secretly envy you. If you haven’t started yet, pull out your VISA and get your motor running. The malls may be packed, but take a deep breath and remember - it’s a sign of good things to come for the economy, you’re doing your part, and you’re in very good company.

Traders will grab their coffee and hold onto their snowshoes - right out of the gates on Monday morning, the Empire State Manufacturing Index will hit at 8:30 ET. The market seems to be anticipating some good news here, which could cause mortgage interest rates to move slightly higher. The action continues on Tuesday with the Consumer Price Index Reports on Tuesday, which measures how much a consumer is paying for a fixed “basket” of goods and services. Toward the end of the week, Thursday brings us the always exciting Initial Jobless Claims and yet another manufacturing index, the “Philly Fed”, based on manufacturers in the Philadelphia area.

Remember, as a general rule, weaker than expected economic data would indicate the economy is not improving as quickly as expected, and could cause mortgage interest rates to improve. Positive data would indicate a strengthening economic climate, and could cause mortgage interest rates to gradually climb higher.

For the week of December 15th - December 19th, 2003