Consumer inflation is about where economists believed it was; a little on the higher side. But, the numbers were not too bad. CPI rose .3% last month, and core CPI was up .2%. The good news for inflation is that oil prices have fallen to $90.75 this morning. Maybe traders have faith that President Bush will get to OPEC and they will have a change of heart and start producing more oil. Or, what’s more likely is that we’re entering a period of lower demand, causing prices to decline naturally.

Industrial production came to a standstill in December, which does not bode well for manufacturing jobs. It also signals less demand for consumer goods, automobiles, and machinery. If nothing is being built, it means there is no demand for the products. Clearly, most businesses are not counting on very strong sales to start the year.

Stocks are sliding again after Intel announced weaker than expected earnings for the fourth quarter. They also came out with a low profit forecast for this quarter. The Dow is down about 80 points, and it has held under 12,500 for most of the first hour of trading. Unless another company comes out with some incredible earnings, stocks are likely to float lower again today. In fact, the downward momentum may even gain strength later in the day, since there is very little support for the Dow.

The FNMA 30-year 6.0% did tick higher, but it turned negative after the stock market opened. It is currently down just 6bp at 102.47, and today’s candlestick is actually sitting just above our trend channel. Like we mentioned yesterday, traders are going to be hesitant to let prices fly away. However, money is still flooding the Treasuries markets, and usually when they become stuffed, money will spill over into MBS in search of greater returns.

Meanwhile, Treasury yield keep setting fresh lows. The new bottom today is 3.62%, but it has since popped back up to 3.66%. That brings us within a stone’s throw of a four year low. That support level is 3.56%. At this point, if the stock market does eventually hit our target of 11,500, the 10-year yield will probably be at it’s all-time low of 3.08%