The PPI, The CPI and The Punt

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With a plethora of impactful economic releases on tap for this week, don't be surprised if mortgage rates are as random as the Eagles' 4th-down playcalling while traders try to figure out the 2007 direction of the U.S. economy.

Wednesday morning, the Producer Price Index will tell us if business is paying more to do business.  PPI helps us to understand the cost pressures on corporate America.  Then, following PPI's release, is Industrial Production.  This report will tell us just how much business is producing.

Both PPI and Industrial Production are expected to be lower than from November's readings and that may be related to December's "holiday hours".

Next, on Thursday, we'll get to see December's Consumer Price Index (CPI) figures and the month's Housing Starts.  CPI tells us whether the Cost of Living is increasing or decreasing for Americans and Housing Starts will give insight into builders' mentality. 

If Housing Starts is higher than expected, it may signal that builders feel the Housing Slump is in its last years.  Given that weather nation-wide was fairly temporate until about three days ago, expect a higher-than-expected number and the subsequent cries of "The Bubble Popped!  The Bubble Popped!".

Ahead of this week's data, markets put a 72% chance that the Fed Funds Rate will still be 5.250% after May's FOMC meeting and a 17% chance that it will drop to 5.000%.  We'll see what those percentages look like at the end of the week.