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In early trading, MBS were slightly better and equity futures were indicating a higher opening. After absorbing some earnings reports, Treasuries and MBS prices weakened but were still holding well. By the stock market opening, the bond and mortgage markets were trading better. Overseas markets were up on the positive US reports. The DJIA opened up higher but not as strong as the better earnings reports would normally indicate. There is really no conviction as to where we are heading and that is what the markets are signaling. By the time of this writing, the Dow flipped into negative territory.

It's all about corporate earnings this week. After the market close yesterday Apple report solid earnings and shrugged off the negative publicity in regards to the antenna troubles with the iPhone 4. So far analysts have been disappointed with revenue potential from other major companies (IBM and Texas Instruments) but Apple showed good top line growth potential. In addition, this morning Morgan Stanley reported good earnings where Wells Fargo posted lower profits but beat estimates for the second quarter and is showing that their Albatross (Wachovia Bank) is no longer bleeding the company. Industrial companies also reported this morning and beat estimates. The key to moving forward is the potential for companies to grow over future quarters given the economic slowdown that we are beginning to feel. Whether or not we double dip is not the focus but can we grow revenue in a slow economy.

The Mortgage Bankers Association released its Weekly Mortgage Applications Survey for the week ending July 16, 2010. The overall index was +7.6%. The Refinance Index increased +8.6%, the highest since May 15, 2009. The report showed that the increase was all about conventional refinancing. The Purchase Index also shoed an increase +3.4%, all driven by government purchase applications. Borrowers are looking for the lower downpayment requirements that government mortgages offer. The average contract interest rate for 30-year fixed-rate mortgages decreased to 4.59 percent from 4.69 percent, with points increasing to 1.04 from 0.96 (including the origination fee) for 80 percent loan-to-value (LTV) ratio loans. This was the lowest 30-year contract rate ever recorded in the survey. The average contract interest rate for 15-year fixed-rate mortgages decreased to 4.05 percent from 4.12 percent, with points decreasing to 0.88 from 1.04 (including the origination fee) for 80 percent LTV loans. This was the lowest 15-year contract rate ever recorded in the survey. The average contract interest rate for one-year ARMs decreased to 7.17 percent from 7.20 percent, with points increasing to 0.24 from 0.22 (including the origination fee) for 80 percent LTV loans.

Fed Chairman Bernanke testifies before Congress today (Senate) and tomorrow (House) starting at 2pm. Many are hoping that he will provide good news on the economy and its outlook and give us more direction on what the Fed will be doing as we move forward.

There are no economic reports due out today. The bond market will take its cues from equities. Equities have been flip-flopping and will likely do so for the rest of the week. Traders have little to focus on except for the better earnings that have been coming in. Technical readings are still bullish in the near-term but with the lack of any news to grab onto; the debt markets will continue their sideways moves. Once again it all comes down to the final hour of trading. Despite the strength in equities, the bond and mortgage markets are holding steady.

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