Treasuries and mortgages started a little soft this morning, prior to 8:30 the 10- yr note was off 9/32 at 3.36% once again finding resistance at 3.31% which was Friday's low before closing at 3.33%. Mortgage prices prior to 8:30 -5/32 (.15 bp). At 8:30 Dec personal income and spending were reported; income up 0.4% with forecasts of +0.5%, spending +0.7% against expectations of +0.6%. In 2010 income was up 3.0% while spending increased 3.5%. There was little reaction to the data, the 10 yr improved a few 32nds. Stock indexes after the report, the DJIA up 40 points after falling 166 points on Friday. The personal consumption index, slowed further below the central bank’s long-term forecast. The Fed’s preferred price index, which is tied to spending patterns and excludes food and fuel, increased 0.7% from December 2009, the smallest increase since records began in 1959. The core price index was unchanged in December for the fifth time in the past six months. The gauge was forecast to increase 0.1% from November and 0.8% from December 2009.

The unrest in Egypt continued over the weekend but is having little or no affect on US markets. Mubarak is on his way out after 30 years but markets believe the transition to a new government will not disrupt US/Egypt relations or disturb oil flows through the Suez Canal with only about 3.0% of oil moves through it.  Mubarak, Egypt's president, has sworn in a new cabinet in a bid to quell days of mass uprising against him and the government. The changes are unlikely to save Mubarak, riots and protesters still occurring; meantime a lot of press on it but markets seem non-plused.

At 10:00 the Chicago purchasing mgrs index, expected at 65.0, jumped to 68.6 frm 66.8 in Dec; the highest index reading since July 1998. New orders increased to 75.7 frm 68.7, prices pd increased to 81.7 frm 78.0 and employment component increased to 64.1 frm 58.4 (any index reading over 50 is considered expansion, the higher the stronger). The initial reaction wasn't much in the bond market.

Last Friday the DJIA fell 166 points in what may be the start of the expected correction in the equity markets. This morning the all key indexes opened better and at 10:00 still a little better but struggling a little. The 10 yr note rate fell to 3.31% on Friday on the stock market weakness, the recent level that has stopped any rallies in the past couple of weeks. This morning, after opening higher the 10 yr at 10:00 is firming at 3.34% up just 1 bp and mortgage prices at 10:00 unchanged.

The stock market is presently hanging in there but looks soft. If the 10 has any chance to break to lower rates the equity markets will need to roll over. A rally in equities today will keep rate markets from improving much. With the employment report on Friday the financial markets are more likely to sit still with some choppiness and no real changes until later this week.

This Week's Economic Calendar:


             10:00 am Dec construction spending (-0.5%)

                           Jan ISM manufacturing index (58.2 frm 57.0)

             3:00 pm Jan Auto and Truck sales


             7:00 am weekly MBA mortgage applications

             8:15 am ADP employment estimate for Jan (+150K private jobs)


             8:30 am weekly jobless claims (-19K at 425K, con't claims 3.925 mi frm 3.991 mi)

             10:00 am ISM manufacturing index (57.0 frm 57.1 in Dec)

                           Dec factory orders (-0.7%)


             8:30 am Jan employment data (non-farm jobs +150K, private jobs +163K; unemployment rate 9.6% frm 9.4% in Dec)




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