The Week Ahead: Light Economic Calendar, EU Summit, MBS Settlement

By: Matthew Graham •

This week's economic calendar is one of the lightest of the year, averaging just one report per morning, with 2 of the five coming today.  In addition, the fact that next week sees an FOMC announcement and that the much-anticipated EU Summit happens on Friday creates a nearly perfect environment for markets to trade on speculation and anticipation rather than hard data.  That may or may not prove to be a frustration for MBS, but as is noted in this morning's alert from MBS Live, mortgages are performing better than Treasuries so far this morning:

Bond Markets Slightly Weaker on Italian Austerity, General 'Risk-On' Themes 8:40AM

In 1984, the world had no idea that the "wax-on, wax-off" scene from the new Karate Kid movie would still be serving as the foundation for satirical allusion more than 2 decades later. Yet here we are this morning with no better way than to describe the ebbs and flows in bond markets as "risk-on, risk-off." 

During the overnight session, safe-haven buying waned as Italy's Monti "waxed-on" (you see what I did there?!) about the just-announced €30 bln austerity package. Monti told it like it was in saying that the plan worsens the recession but prevents a total collapse. Reaction was positive (Dutch PM "impressed," spokesman for EU's Rehn reiterates positive opinion) , and Italian spreads to EU benchmark Bunds moved much tighter. 

After dominating the overnight headline scene, it only made sense to continue to listen to Monti early this morning when he said the "Euro Summit must strengthen fiscal cooperation, EFSF Capacity" (RTRS). That seemed to jive well with an article in the UK Sunday times declaring: "A €1 trillion cash injection for the troubled eurozone economy is being prepared by the European Central Bank ahead of a series of key crisis summits this week." Against the backdrop of an almost non-existent domestic economic calendar this week, we're exceedingly susceptible to the same sort of speculative run-up to an EU Summit that we saw the last time there was, well.... a speculative run-up to an EU Summit. 

10yr yields are already up 7+bps at 2.107, but MBS are as-yet, presenting a silver lining, down only 7 ticks this morning at 101-30 in Fannie 3.5's. A Hilsenrath piece in the WSJ which primarily served to hint at next week's increased transparency efforts also made mention of MBS. Considering that Hilsenrath is widely-regarded as the FOMC's personal press-release department, this adds to the expectation for QE3: MBS.

Here's a video snapshot of some of the action earlier this morning from the MBS Live Dashboard.

MONDAY 12/5/11

  • 1000 AM - Factory Orders - Previous: +0.3% / Forecast: -0.3%
  • 1000 AM - ISM Non-Manufacturing - Previous 53.8 / Forecast 55.2

TUESDAY 12/6/11

  •  MBS Prepayment Speed report will be released late afternoon (any effect on trading more likely seen on Wednesday)

WEDNESDAY 12/7/11

  • 700 AM - MBA Applications - Previously, Refi Index: -15.3%, Purchase Index: -0.8%

THURSDAY 12/8/11

  • 830 AM - Jobless Claims - Previous: 402k / Forecast: 395k
  • 1000 AM - Wholesale Trade - Previous: Inventories: -0.1, Sales: +0.5 / Forecast: Inventories: +0.3, Sales: +0.4

FRIDAY 12/9/11

  • 830 AM - International Trade - Previous: -$43.11 bln / Forecast: -$43.5 bln
  • 955 AM - Consumer Sentiment - Previous: 64.1 / Forecast 65.5
  • The EU Summit is also an ongoing event on Friday, and potentially the most significant event of the week.  Look for more details in the MBS Commentary channel as the week progresses.