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In early trading, MBS were trading higher as equity futures were indicating a weaker opening due to earnings worries. After the market close yesterday IBM and Texas Instruments reported earnings that missed revenue expectations. This added a bid back into the debt markets heading into this morning. Goldman Sachs reported earnings this morning that beat expectations but revenues were lower due to their settlement with the SEC and their UK tax for bank executive bonuses. Focus has shifted to top line earnings versus bottom line results as analysts are worried about earnings sustainability now and less on cost cutting for revenue growth. Investors are clearly not happy with results and are sitting on the sidelines. Equity futures were stressed further after this report adding more strength to the debt markets.

At 8:30 this morning The Commerce Department reported June housing starts came in lower than expected -5.0% on expectations of a -2.1% decline. This is the lowest level in eight months and the second consecutive monthly decline; a further sign that the economy is slipping. May's numbers were revised lower -14.9% from -10.0%. This should come as no surprise as inventories of unsold homes is very high weighing on any new building. June building permits came in higher than expected +2.1% on expectations of a decline of 0.7%. This follows a -5.9% decline for May. Now that the homebuyer tax incentives are over analysts expect more declines in home sales as housing prices continue their slide. Initial market reaction gave futures a boost and bonds held steady.

There are no more economic reports due out today. Investors will be focused on earnings reports. The markets will be volatile as there is seemingly so much uncertainty as to where our economy is heading. Signs are pointing to a slow down but this may already be priced into the markets for today at least. Volume is very thin which can lend to bigger swings in the markets.

Tomorrow there are no reports due out except for the MBA's weekly mortgage application index. Purchase applications are expected to be down again.

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