The Day Ahead: Thursday's Data and Treasury Auction Follow a Big Act

Bond markets improved in the overnight session.  The pace was slow at first as German, French, and Italian economic data were all close to consensus estimates.  Volume picked up after 5am and 10yr yields fell to 1.937 before returning to 1.959 for the domestic open.  Stock futures are up slightly overnight to 1324.5, and MBS look to be opening about 5 ticks higher at 103-05 in Fannie 3.5s.

Thursday is one of the more active days this week in terms of morning economic reports.  The 830am slot hosts 3 reports of varying importance.  With us as always, weekly Jobless Claims are seen coming in at 370k versus last week's 352k.  December's Durable Goods are seen adding on to November's 3.7% pace at a less brisk, but still positive 2.0%.  Excluding transportation-related durables, orders are expected to rise from 0.3% to 0.7%.  The third, and least publicized of the 830am reports is perhaps the most important in the slot.  Historically, the Chicago Fed National Activity Index has been a fairly good proxy for the directional change in GDP, which itself hits 24 hours later.  Last month's Chi-Fed Index printed at -0.37.  Anything over that is basically an uneventful commentary on Friday's GDP reading as the magnitude of their correlation often varies.  But a weaker reader than -0.37 would offer at least some small counterpoint to the fairly healthy improvements expected in GDP. 

New Home Sales at 10am are less of market mover, but whether or not various housing metrics can begin to do anything other than skid along their post-crash stagnation is at least somewhat interesting (Pending Sales obviously failed at this task with today's 3.5% pull back).  Finally, although not an economic report, the 1pm 7yr Note Auction is perhaps the hottest ticket of the day, not necessarily because it, itself, is a tremendously important or well-traded issue, but simply because it is the last of the week, not to mention a neighbor of the 5yr note which fell to record low yields following Wednesday's FOMC Announcement.

As much data as there is on tap, Wednesday's unprecedented low-rates through late-2014 forecast from the FOMC trumps all.  It's chief argument from a market reaction standpoint was to suggest that bond markets are either going sideways or bouncing bullishly.  Unless Thursday and Friday's data and events are exceptional, they should serve only to moderately clarify the picture already painted by the FOMC announcement.  In other words, the week's remaining events will essentially voice their opinions regarding "sideways" or "improving" for the bond markets, but it would take a coordinated effort to undo the big supportive bounce at 2.10% seen in 10yr yields.