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Interest rates are weak this morning on better earnings data and a change in the technical outlook on the S&P 500 index that climbed above its 200 day moving average yesterday. DuPont came in with much better Q2 numbers adding fuel to the early rally in the stock market; at 9:00 the DJIA index +62, the S&P +7. At 9:00 the 10 yr note -14/32 and getting weaker as the early day moves along; mortgage prices at 9:00 -8/32 (.25 bp) frm yesterday's close. Europe's stock markets also stronger this morning. At 9:30 the DJIA opened +38, the 10 yr at 9:30 -14/32 at 3.04% +4 BP and mortgage prices -6/32 (.18 bp).

The 10 yr treasury note is moving above its 20 day average on the yield chart and the 30 yr FNMA coupon is working at its 20 day average that has not been broken since mid-April. Technically it is a critical period now for the rate markets after weeks of improvement in rates last week the the key 10 yr tried once again to break 2.88% but failed, now traders want to take profits and possibly short the bond market. Too early to tell but if the 10 yr note rate increases above 3.11% it will signal the end to the recent long rally.

At 9:00 the May Case/Shiller home price index increased by 0.5% with the 20 city index up 4.6% yr/yr. Most of the gain was a result of the tax credit and doesn't yet signal any significant turn in the housing sector. David Blitzer, the author of the data said "it still looks possible that the housing market might bounce along the bottom for the foreseeable future, before showing any real improvement that will filter through to the rest of the economy".

At 10:00 the July Consumer Confidence index from the Conference Board was expected at 51.0 frm 52.9 in June; it hit at 50.4 frm a revised June at 54.3 The expectations index at 66.6 frm 72.2 and the present situation index at 26.1 frm 26.8 in June. The "jobs hard to get" index increased to 45.8 frm 43.5. No reaction to the weaker data in either stocks or interest rates.

Treasury borrowing starts today with the 2 yr $38B auction at 1:00. Given the recent increases in rates over the past few days the auction should meet with good demand; banks like the 2 yr and with cash piling up the 2 should see strong demand. If the 2 doesn't meet strong demand Treasury prices across the curve will struggle and pull mortgage prices lower.

July chain store sales from the Johnson Redbook were up 2.7% yr/yr but compared to June sales declined 0.7%. Sales remain soft as consumers hold on to their money; August will likely show a nice improvement based on seasonal back to school buying. Consumers still reluctant to open up and buy; not much discretionary buying, just necessities.

The equity market at 10:00 is a little lower than at the 9:30 open; interest rate markets at 10:00 are somewhat improved from 9:30 levels. Mortgage prices at 9:30 were down 6/32 (.18 bp); at 10:00 -1/21 (.03 bp).

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