Update #3/ week of January 10, 2011/ ARA MELKONIANS

Good Morning Everyone and Happy Wednesday! The improvement in mortgage rates that we celebrated late last week was in large part due to the concerns that we have been discussing with the debt crisis' in Portugal, Spain and even Italy. Yesterday we talked about the good bond auction that took place in Greece and Italy which helped the stock market and hurt bond prices. Successful bond auctions overnight in Portugal and Germany are creating a more comfortable feeling about the situation over in the European Union, and thus we are watching bond rates move higher again today.

This good global news coupled with some positive minor economic news releases so far today is giving equities reason to cheer and so far bullish traders are taking full advantage of it. The Import Price Index for December made a month-over-month increase of 1.1%, which is a slower pace than the 1.5% monthly increase recorded for November. However, year over year, import prices for December increased by 4.8%, which is up from the 3.9% year-over-year increase recorded for the prior month.

Oil inventories are down slightly which is helping oil prices rise. Still to come this morning is the release of the Fed's Beige Book, the Treasuries December budget statement, and the results from the auction of 10 year notes. All of these could have some impact on the market, but a decline in the volatility index is probably keeping credit markets from absolutely running for cover. I guess that would be the silver lining to the rise in interest rates in the last couple days.

Mortgage applications for refinances were actually up last week by 4.9% according to the Mortgage Bankers Association. I don't suspect that's going to be the case this week. Purchase applications were actually down 3.7% last week. Single-family home prices slid 5.1% in November, according to Core Logic, the 4th consecutive monthly slide. However, Fannie Mae and Zillow expect home prices to start rising in the 3rd quarter of 2011. The MBA and NAR both expect higher home sales and construction in every quarter this year. That would be great, and set us up for some semblance of a housing recovery in 2012.

I hope all of you have a terrific Wednesday and a profitable and productive rest of the week!