Another increasing concern in the markets; will Bernanke stay for another term if the opportunity is extended to him? Overnight, President Obama commented that Fed Chairman Ben Bernanke has ‘stayed a lot longer’ than he wanted, paving the way for what looks like the Chairman’s exit when his term expires in January. Bernanke has been the driving architect for the Fed’s move to prop up the economy by printing money at a rapid rate (QEs), within the Fed there are wide differences opinion over the effectiveness of continued support for interest rates. Who will replace him? Janet Yellen the Vice Chair, or an outsider? Regardless of the who, the main question that will begin to dominate thinking as the calendar falls is will Bernanke’s polices be continued.

May housing starts were expected up 11.0% after declining 14% in April, as reported starts were up 6.8%, still a good number even though less than forecasts. May building permits were expected to have declined 4.0% as reported down 3.1%. Applications to build one-family homes increased 1.3% to a 622,000 pace, the fastest since May 2008. Starts on multifamily projects such as apartment buildings increased 21.6% to an annualized rate of 315,000.

Inflation at the consumer level ticked up 0.1% in May from April, slightly less than the 0.2% increase economists’ expected. Excluding the food and energy components, prices were up 0.2%, matching forecasts.

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The NAHB/Wells Fargo Housing Market index surged to 52 in June from 44 in May, easily topping forecasts for 45. This is the first time the index has been above 50 since April 2006, suggesting more homebuilders view conditions as favorable than those who see them as poor.

This week while there is May housing data; existing home sales, the NAHB June housing market index, and May starts and permits; and a couple of other key economic measurements none of the data trumps the big event this week---the FOMC meeting that concludes on Wednesday afternoon. After the recent spike in interest rates there is talk that the Fed will confirm that it will continue the current levels of purchase instead of any curtailing of the amount of its monthly purchases. The economy isn’t recovering at the rate the Fed has said it wants to see before backing away frm supporting the bond and mortgage markets. On the other hand there is as much talk that the Fed is about to taper its purchases.

The normal policy statement that is released after the meeting will be followed by Bernanke’s press conference where he will field questions. He will be pushed for specifics, how he responds will likely set the stage for the next move in long term interest rates, including the mortgage markets. Unemployment remains high, one of the keys he has said many times to when the Fed will end its support for interest rates. Inflation is not a problem other than it is lower than what the Fed has said is their target at 2.0%. Technically the bond and mortgage markets continue to reflect bearish readings. Look for volatility to increase later this week after Wednesday’s Fed comments and Bernanke’s press conference.

The New York Federal Reserve's regional manufacturing gauge jumped to 7.8 in June from -1.4 in May, easily beating expectations of zero. Readings above zero point to expansion, while those below indicate contraction.

The markets are kicking the week off in rally mode amid hopes the Federal Reserve won’t trim back its massive bond-buying operation too soon. The Dow is up 150 points, or 1%, while the broader S&P 500 is up 0.8%. Every major sector is in the green, led by energy stocks.

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A preliminary reading on U.S. consumer sentiment from Reuters and the University of Michigan checked in at 82.7 in early June from 84.5 in May, falling short of expectations that it would hold steady.

Prices at the producer level rose 0.5% in May from April, a slower pace than the 0.1% economists expected. Excluding the food and energy components, prices were up 0.1%, matching forecasts.

Global stocks fell, sending the benchmark index to a seven-week low, and the yen strengthened after the World Bank cut its growth forecast. U.S. equity-index futures stayed lower after a report showed retail sales rose more than forecast in May. According to the World Bank the global economy will grow 2.2% in 2013, in Jan the Bank forecast growth at 2.4%. More than $2.5 trillion has been erased from the value of global equities since Fed Chairman Ben S. Bernanke said May 22 the central bank could scale back stimulus efforts should the job market show “sustainable improvement.”

At 1:00 PM ET Treasury will auction $13B of 30 yr bonds, yesterday the 10 yr auction didn’t see strong demand.

The Commerce Department reports retail sales ticked up 0.6% in May from April, beating expectations of a 0.4% rise. Core sales, which excludes automobiles, gasoline and building materials, increased 0.3%.

U.S. import prices fell 0.6% in May from April, while export prices dipped 0.5%, compared to expectations that both would hold steady for the month. Import prices were down 1.9% from the same month last year, while export prices were off 0.9%.

New claims for unemployment benefits fell by 12,000 to 334,000 last week. Claims were expected to fall to 345,000 from 346,000 the week prior.

“The NFIB Index of Small Business Optimism rose 2.3 points to 94.4. This is the second highest reading since the recession started (95.1 is the highest) and the best reading since May of last year, but not one signaling strong economic growth. This is not a surprise given the current state of paralysis in Washington and the still very mixed news on the economy. The Fed has promised to add another trillion dollars to its portfolio, a terrifying prospect to many observers. The federal deficit will be smaller, but still huge and basically financed by the Fed. While the stock market sets records, GDP posts mediocre growth and the unemployment rate remains in the mid-7s. Departures from the labor force, not job creation, contribute to its decline when it does fall. Pessimism about the economy and future sales did moderate, 8 of the 10 Index components gained, but planned job creation fell a point and reported job creation stalled after 5 “up” months. Capital spending was flat as were plans, the inventory picture improved a bit. But, overall, nothing to suggest a surge is underway. No issues on the credit side, most owners have no interest in a loan, regular borrowing activity fell to historic lows and complaints about the difficulties associated with getting a loan fell again. Reports of sales gains were flat. Consumer optimism is up, but it’s not clear why, as incomes and jobs are performing poorly. In early readings, optimism was up for high income consumers and down for low income consumer, perhaps a stock market effect. Not much to hang your hat on. So, we are back to where we were in May, 2012.”

Treasury will auction $21B of 10 yr notes at 1:00 PM ET this afternoon. A key auction for the long end of the curve and for the MBS markets; weak demand will add a little more pressure to the mortgage markets. Yesterday Treasury sold $32B of 3 yr notes that met with weak demand; that however isn’t indicative of how the 10 will go.

More mixed data this morning, for the first time in a month weekly mortgage applications have increased frm the previous week. Mortgage applications increased 5.0% from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending June 7, 2013. The Refinance Index increased 5.0% from the previous week. Despite the increase in the refinance index last week, the level is still 11% lower than two weeks prior and 36% lower than the recent peak at the beginning of May. The seasonally adjusted Purchase Index increased 5% from one week earlier. The refinance share of mortgage activity increased to 69% of total applications from 68% the previous week. The adjustable-rate mortgage (ARM) share of activity increased to 7% of total applications. The HARP share of refinance applications fell from 32% the prior week to 29%. The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,500 or less) increased to 4.15%, the highest rate since March 2012, from 4.07%, with points increasing to 0.48 from 0.35 (including the origination fee) for 80% loans. The average contract interest rate for 30-year fixed-rate mortgages with jumbo loan balances (greater than $417,500) increased to 4.25%, the highest rate since May 2012, from 4.20%, with points increasing to 0.32 from 0.28 (including the origination fee) for 80% loans.

The average contract interest rate for 30-year fixed-rate mortgages backed by the FHA increased to 3.81%, the highest rate since April 2012, from 3.76%, with points decreasing to 0.26 from 0.32 (including the origination fee) for 80% loans. The average contract interest rate for 15-year fixed-rate mortgages increased to 3.32%, the highest rate since April 2012, from 3.23%, with points remaining unchanged at 0.38 (including the origination fee) for 80% loans.The average contract interest rate for 5/1 ARMs increased to 2.78%, the highest rate since June 2012, from 2.76%, with points decreasing to 0.30 from 0.41 (including the origination fee) for 80% loans.

The BOJ left monetary policy unchanged, the yen is strengthening. Speculation, at least this morning, is that central banks will fail to keep the global recovery on track. Here we have speculation that the Fed is about to begin withdrawing its stimulus; so far all the money printed by the Fed has had only a minor positive impact on our economy. In Europe the ECB left its base rate unchanged when it met a ago. Now Japan, expected to pump barrels of yen into the markets has unexpectedly decided to not increase its stimulus.