Mortgage Backed Securities are PLUS 6bps this morning.

The fear mongers have held the markets down for the last few weeks. Retailers Target and Staples say not so fast my friends. Target the 2nd largest retailer profits rose 3.7% and beat expectation. They also raised their year end guidance. Raised their guidance in the face of the largest recession we will see in our lifetime? Staples the number one office supplies chain also beat expectations. That means the consumer is spending but just not on the high end merchandise. That was evident by Ambercrombie lowering its year end outlook. The demise of the US economy may be overstated.

Tomorrow three very key numbers will be released. The first will be the Philly Fed Index. The index looks at manufacturing in the east region. The second will be Initial Jobless Claims. The last few readings have come in under 400,000. A better than expected number will rally equity markets. The last is the CPI number that tracks consumer inflation. We saw today that the Producer Price Index was higher. The CPI number will tell us if the producer inflation is being passed to the consumer.

The equity markets are looking for a reason to run higher. We started today with good retail numbers. If we see jobs and manufacturing pick up, the markets will rally and push interest rates higher. I am not saying that eventually the markets will not falter under global pressure. I am saying in the short term we could see rates move higher on a better than expected economic outlook.

Milwaukee Mortgage Rates remain unchanged today.