The Week Ahead: Month-End, EU Optimism, and Jobs Report

By: Matthew Graham •

Here's a look at what's moving markets as we begin a new week, as well as a snapshot of MBS and Treasury levels from MBS Live:

MBS and Treasuries Significantly Weaker on Italian Rescue Hopes 8:44AM

Much in the same way that the EU summit from over a month ago drove shift toward "risk-on" trading, current events such as the rumored 517 billion euro IMF package for Italy, the stiff-upper-lipped "pacts" among Euro-Zone leaders, and the potential treaty changes that could clear the way for the ECB to play a more Fed-like role are causing a sharp shift higher for Treasury yields and lower MBS prices. While the IMF denies that it has a credit package in the works for Italy, EU finance ministers are set to meet tomorrow to discuss bailing-out/rescuing/supporting Italy and Spain. Whether it comes out of that meeting or not, the anticipation that some important shoe is about to drop for the EU crisis is putting pressure on bond markets and lifting equities, just like it did a month ago. 

After trading no higher than 1.99's since 11/21, 10yr yields are in the 2.07's at the moment and Fannie 3.5's are down 10 ticks this morning to 101-10, well past the longer-term 101-16 support floor. Whether that's to be treated as an immediate trigger to lock or more of first warning sign still needing confirmation, is a matter of personal preference. Regardless, more informed decisions in that regard can be made closer to the end of today's session than the beginning. 

The only major scheduled economic data today arrives at 10am in the form of New Home Sales, but it's not expected to be a big market mover. Not only is the report itself relatively less important than other domestic data, but domestic data is relatively unimportant compared to EU headlines. That's not to say that the rest of the week's economic data can't and won't move markets, simply that the most potent driver of bond market changes is still the EU.

In terms of 10yr Treasuries, the following chart shows the damage done this morning in a broader context.  The 2.07 zone is one that has been a prevalent support level throughout the month.  If a move higher is confirmed the next big test could be around 2.12.  If bond markets return to their rallying ways this week, there are technical resistance levels to get through at 2.04, 1.98 and 1.95 with 1.87 being about the limit on anything but a fully-panicked flight-to-safety.

Here's the domestic data that will help guide the market movements in addition to EU headlines:

MONDAY 11/28/11

  • 1000 AM - New Home Sales - previous: 0.313 million units / forecast: 0.315 million units

TUESDAY 11/29/11

  • 900 AM - Case Shiller Home Prices - On a seasonally-adjusted basis, there's no change expected to the month-over-month 20 city index while the not-seasonally-adjusted numbers are expected to have slowed to 0.1% from 0.2% last month.  The year-over-year rate of decline is also expected to have eased to -3.0% vs -3.8%
  • 1000 AM - Consumer Confidence -  previous: 39.8 / forecast: 44.0
  • 1000 AM - FHFA Monthly Home Prices

WEDNESDAY 11/30/11

  • 700 AM - MBA Applications - previous purchase change: +8.2% / previous refi change: -4.0%
  • 815 AM - ADP Employment - previous: 110k / forecast 130k
  • 830 AM - Productivity and Costs - previous: 3.1% productivity, -2.4% costs / forecast: 2.6% productivity, -2.2% costs
  • 945 AM - Chicago PMI - previous 58.4 / forecast 58.4
  • 1000 AM - Pending Home Sales - previous change: -4.6% / forecast +1.5%
  • 200 PM - Beige Book

THURSDAY 12/1/11

  • 830 AM - Jobless Claims - previous: 393k / forecast 390k
  • 1000 AM - ISM Manufacturing Index - previous: 50.8 / forecast: 51.5
  • 1000 AM - Construction Spending - previous: + 0.2% / forecast: +0.3%

FRIDAY 12/2/11

  • 830 AM - Employment Situation Report - previous: +80k / forecast: +122k, unemployment rate seen unchanged at 9.0%