The Day Ahead: On GDP Day, Beige Book Could Be Dark Horse

Occasionally, reality proves to sober the cynicism or concern in our analysis.  Sometimes, events crop up that have an unexpectedly large impact on trading momentum and force us to reconsider how we first approached them.  Sometimes events that we expected to have a relatively noticeable impact on markets prove uneventful.  And still other times, when we feel like we're pushing the figurative boundaries of cynicism about particular events, the actual market reaction proves that we weren't being nearly cynical enough.

Tuesday was one such example of an analytical failure to be cynical enough.  Sure... we were right about the 2yr Auction.  No one cares about those any more, but that's an easy call to make in the past year.  But when it came to Consumer Confidence--a report that missed by a fairly healthy margin (60.6 actual vs 66.00 consensus)--we soon saw that we hadn't been nearly dismissive enough about it's market moving potential.

You see, we'd entertained the possibility that a big enough miss in Consumer Confidence could somehow help shape the week's trading leading up to Bernanke at Jackson Hole and the action-packed first weeks in September.  Indeed, we might have seen more of a reaction if, for instance, the headline printed 6 points better than expected as opposed to 6 points worse, but that's at moot point because we got zero reaction. 

So to reiterate our stance on the week once more, with feeling.  It will take some doing (ok, it will take "a lot of doing") for any of this week's scheduled economic data to push bond markets significantly in one direction or the other.  We feel like a good amount of the balance was restored last week when 10's hit 1.63 and noted tradeflows evening out at that time.  Further, we suggested that things would be mostly sideways, but slightly tilted positively or negatively and prone to drifting on this lightly-staffed vacation week.  As it happens, we're getting a slightly positive drift on mostly sideways trading since then. 

We'll be surprised if today's 8:30am GDP report for Q2 is timely enough and provides any big enough insights to change that sideways outlook.  Pending Home Sales are interesting for their connection to our industry, but otherwise, not a market mover.  In the current era with markets mostly focused on the Fed and Europe, we'd probably be most interested in the Beige Book of all things, set for release at 2pm, which summarizes comments on economic conditions from businesses and other sources outside the Fed (but will be used in the upcoming FOMC meeting ending 9/13). 

Since the Fed's put the ultimatum to the economy to improve "substantially and sustainably" or prepare for QE3, this version of the Beige book could get more attention than the previous examples which are generally old news.  In the sense that the data will have been collected several weeks ago, this one will be "old news" as well, technically.  But in the sense that it will be on the meeting table at a comparatively more important FOMC meeting, it's a comparatively more interesting Beige Book report.