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Treasuries and mortgages opened a little softer this morning after the strong rally Friday; at 8:30 the 10 yr -6/32, mtgs -2/32 and the DJIA +43. At 9:00 the 10 yr -6/32, mtgs -2/32 and the DJIA +30. At 9:30 the DJIA opened +45, 10 yr note -3/32 mortgages -1/32.
With the exception of six days the 10 yr note and mortgages have stayed within a narrow range and so far show no emphasis on breaking out of it. Going with equities again; the stock market, the markets outlook for the economy, is looking soft after months of almost straight line higher. Friday's 250 point decline in the DJIA gave treasuries a strong boost, mortgages followed with 13/32 (.41 bp) improvement. Nevertheless the 10 yr is still hanging in a 11 basis point range with weaker prices to start this morning on a little better outlook for the equity market---at least on the open.
Three economic readings at 10:00 this morning. The most significant, Oct ISM manufacturing index, expected at 53.0 it hit at 55.7; new orders at 58.5 frm 60.8, employment jumped to 53.1 frm 46.2 and prices pd at 65.0 frm 63.5. The report, better than expected sent treasury and mortgage prices lower and stock indexes higher. Continued volatility confined to the tight range, the 10 yr yield at 3.44% with support at 3.50% as has been the case for two months. Mortgage prices were unchanged on the session prior to the ISM, declined 3/32 on the initial reaction.
Sept construction spending, expected to be -0.2% was up 0.8%.
Sept pending home sales at 10:00 jumped 6.1%, the eighth month in a row pending sales have increased.
This week's Economic Calendar:
Tuesday;
10:00 Sept factory orders (+0.9%)
2:00 Oct auto and truck sales
Wednesday;
8:15 ADP Oct job loss estimate (-190K)
10:00 Oct ISM services sector index (51.5 frm 50.9)
2:15 FOMC policy statement
Thursday;
8:15 ADP Oct job loss estimate (-190K)
8:30 weekly jobless claims (-10K to 520K; continuing claims 5.75 mil, down 5 mil)
Q3 productivity (+6.5%)
Friday;
8:30 Oct non-farm jobs (-175K; unemployment 9.9% frm 9.8%)
10:00 Sept wholesale inventories (-1.0%)
3:00 Sept consumer credit (-$10.3B)
As you can see markets have a lot of key data to think about this week. Two events however are standouts, on Wednesday the FOMC meeting concludes with the short policy statement. Always a test in deciphering Fedspeak but generally by the end of the day a consensus forms as to what the wording really means. This meeting the focus by traders is on how the Fed will possibly change the wording on how long the Fed will leave the FF rate at zero. Recent economic measurements for the most part are improving, in the previous two FOMC meetings the statement said the FF rate would remain where it is for an extended period....."The Committee will maintain the target range for the federal funds rate at 0 to 1/4 percent and continues to anticipate that economic conditions are likely to warrant exceptionally low levels of the federal funds rate for an extended period." Markets are expecting some changes in the wording to allow the Fed more flexibility and to send the message to markets that rate hikes may not be left at present levels for as long as markets interpreted based on the statement in Sept.
Friday the king of all monthly economic readings, the employment report for Oct. Non-farm job losses are forecast to be a lot lower than in previous months, but a slight increase in the unemployment rate. Historically the non-farm job numbers estimates missed the market quite often setting off huge volatility. Recently however the estimates compared to the actual data have been closer, lessening a lot of the volatility; nevertheless it is always the most focused on of all monthly reports.
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