The past couple of weeks have been very interesting, with the anticipation of the Federal Open Markets Committee (FOMC) meeting--as well as the announcement. The market anticipated a 25 - 50 basis point rate cut in the market, but did not anticipate a 50 basis point cut in the fed funds rate as well as the discount rate. The stock market immediately rallied and longer-term interest rate markets such as the 10 year note and U.S. 30 year bonds sold off. The decision can mean increased risk of inflation in the economy as a result of a weaker dollar. Therefore, the Fed is expected to stabilize longer-term yields and ease short-term lending, to enable the system to work through the credit crunch.

Interestingly enough, the PPI and CPI both came out weaker than expected last week, which was factored into the Fed's decision. It is difficult to understand how PPI and CPI could come out weaker than expected, and even lower as several markets continue to make all time highs. PPI was down 1.4% versus down .3% as expected. CPI was down .1% versus unchanged. How is this possible considering consumers are getting squeezed by higher energy costs and higher food costs? From listening to Bloomberg, many big box retail shops are looking for weaker earnings as a result of slower traffic in the stores. Many analysts are also expecting slower holiday sales this year, as a result of higher living costs. Inflation is not only being felt in the U.S. There was a report out this past week indicating that China was experiencing an average inflation rate of 6% on most items, 18% on food products, and 500% on meat products.

The housing market will continue to be a leading headline in the news for quite some time. The trend is clearly weaker in the housing market. Housing starts came out at 1.331 million units versus 1.345 million expected. It has also been reported that housing builders are experiencing a high number of contracts being cancelled. Existing home sales came out at 5.50 million homes versus 5.75 million expected. Later this week, new home sales and construction spending will also come into play.

Fed Watch: The next FOMC meeting is scheduled for October 30th and 31st. The market is expecting the Fed to further cut the Fed Funds rate .25 basis points at this time, due to the continued sub-prime mortgage concerns that are pressuring the housing industry and trickling down into weaker retail spending.

Technical Update: The December 10-Year Note is solidly in an uptrending channel long-term. Near-term, the downside target is 108-00 which coincides with a 38.2% retracement level.

Near Term Trend:  Lower
Long Term Trend:  Higher
Support:  108-17.0, 107-31.0
Resistance:  109-13.0, 110-31.0

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