The Day Ahead: Bond Markets Attempt to Defend the Castle
To whatever extent a dip into the low 104's is scary business for Fannie 3.0 MBS or that a 10yr yield rising into the 1.7's is cause for concern, bond markets have been under seige since last Friday's Jobs report. That siege brought trading levels to the edge of some longer term lines in the sand as of yesterday and today's session is the first chance to either repel the attack or allow the castle walls to be breached.
Is this lens perhaps a bit melodramatic? Yes, but drama 'tis the spirit of the season (especially if the Fiscal Cliff is the role model for hot topics). Besides, it will still be potentially meaningful and perhaps even unpleasant if MBS and Treasuries confirm breaks of the supportive trendlines seen in the next two charts.
10yr Treasuries: We have the confluence of several technically supportive ceilings (remember, when it comes to technical analysis, "support" doesn't predict the future, but merely refers to what's been supportive in the past, thus suggesting the significance of a break beyond support). The 200-day moving average meets up with the 23% retracement level from July's lows through September highs as well as the ascending internal trendline that had provided resistance (to a move lower) ahead of the election, but changed sides and offered support in late November.
Fannie 3.0 MBS: Although MBS haven't broken below their more important horizontal support level at 104-13, not only are they close, but with yesterday's session, they've definitively broken the QE3 Uptrend. We'd need to see more weakness at the beginning of next week to confirm the breaks, but even without confirmation, further weakness today would be disconcerting and perhaps even ominous.
Today's economic data isn't quite worthy of the "top-shelf" designation with CPI at 8:30am (is inflation an issue for anyone right now?), Markit's Purchasing Manager's Index at 8:58, and the Fed's read on Industrial Production and Capacity Utilization at 9:15am. Unless that last report is a real barn-burner, bigger shocks for bond markets are only likely to come from headline risk (chiefly Fiscal Cliff, but Eurozone to a lesser extent), and tradeflow momentum (aka "snowballs").
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Week Of Mon, Dec 10 2012 - Fri, Dec 14 2012 |
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|
Time |
Event |
Period |
Unit |
Forecast |
Prior |
|
Mon, Dec 10 |
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|
10:00 |
Employment Trends |
Nov |
-- |
-- |
108.2 |
|
Tue, Dec 11 |
|||||
|
08:30 |
International trade mm $ |
Oct |
bl |
-42.9 |
-41.6 |
|
10:00 |
Wholesale inventories mm |
Oct |
% |
0.4 |
1.1 |
|
13:00 |
3-Yr Note Auction |
-- |
bl |
32.0 |
-- |
|
FOMC Meeting Begins |
-- |
-- |
-- |
-- |
|
|
Wed, Dec 12 |
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|
07:00 |
Mortgage market index |
w/e |
-- |
-- |
877.0 |
|
07:00 |
Mortgage refinance index |
w/e |
-- |
-- |
4856.7 |
|
08:30 |
Export prices mm |
Nov |
% |
-0.1 |
0.0 |
|
08:30 |
Import prices mm |
Nov |
% |
-0.5 |
0.5 |
|
11:30 |
10yr Note Auction |
-- |
bl |
21.0 |
-- |
|
12:30 |
FOMC Announcement |
N/A |
% |
-- |
0.25 |
|
Thu, Dec 13 |
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|
08:30 |
Initial Jobless Claims |
w/e |
k |
370 |
370 |
|
08:30 |
Producer Price Index |
Nov |
% |
-0.5 |
-0.2 |
|
08:30 |
Retail Sales |
Nov |
% |
+0.5 |
-0.3 |
|
10:00 |
Business inventories mm |
Oct |
% |
0.3 |
0.7 |
|
13:00 |
30-Yr Bond Auction |
-- |
bl |
13.0 |
-- |
|
Fri, Dec 14 |
|||||
|
08:30 |
Consumer Price Index |
Nov |
% |
-0.2 |
+0.1 |
|
08:58 |
Markit Manufacturing PMI |
Dec |
% |
52.3 |
52.8 |
|
09:15 |
Industrial Production |
Nov |
% |
+0.3 |
-0.4 |
|
* mm: monthly | yy: annual | qq: quarterly | "w/e" in "period" column indicates a weekly report * Q1: First Quarter | Adv: Advance Release | Pre: Preliminary Release | Fin: Final Release * (n)SA: (non) Seasonally Adjusted * PMI: "Purchasing Managers Index" |
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