The Day Ahead: Bernanke, Jobless Claims and Philly Fed

Today's session is useful in a way that yesterday's couldn't be.  Yesterday was the first time the world was acquainted with this Summer's version of Bernanke's Humphrey Hawkins testimony at 8:30am.  That happened to be the same time that a potentially market moving Housing Starts report was released, thus preventing clear conclusions as to which piece of data mattered more.  It was almost certainly Bernanke's prepared speech and almost certainly by a wide margin, but perhaps not as wide a margin as would normally exist between the two. 

Hashing that out doesn't matter a whole heck of a lot, but the fact that it's even 'hash-able' suggests less about the extra importance of Housing Starts and more about the fact that Ben didn't really SAY anything.  There was nothing much "new" offered in the speech or the Q&A.  While he did firm up the notion of unemployment being around 7% when QE ended, that was essentially where he left off back in June.  If anything, markets were almost perfectly guarded against surprises, didn't get any, and softened their stance just a bit.  In the grand scheme of things, a 5bp rally in 10yr Treasuries is not only small when it comes to the events in play, but is flat out small in the context of the past 2 months regardless of events. 

The very real danger is that markets are largely tuned out until two weeks from now when the FOMC releases their next policy statement on a week that concludes with NFP.  Then again, the Fed would be hard pressed to offer something new in two weeks if Bernanke didn't today and the worst NFP could do would be to suggest a revisiting of the 2.75 highs (which arguably priced in something close to a worst-case scenario).  Long story short, we're range trading the mid 2's.  MBS are nimbly split between 30yr 3.5s and 4.0s, and only DATA or marked changes in Fed policy can nudge bond markets toward either side of the stasis they're seeking around 2.49.

Why 2.49?  Nothing magical about it.  It's just the midpoint between the technical level that acted as major support on the way up in yield and the other technical level that offered major resistance on the way down (2.46 and 2.52 respectively).  take a look:

To conclude that 2.36 and 2.62 are therefore the low and high limits of the current range is premature.  Indeed too much of the recent action is entirely confined above the 2.46 resistance floor.  We have yet to break that since going above, so it remains an extraordinarily big deal until we close well below for at least a few days.  Even then, it would need to drum up some serious volume, because volume has been much lighter than it was when we tested and broke 2.46 on the way up (only slightly more than half as much volume!).

Back to data, and the notion that "data matters."  If data matters--especially employment data--then big beats/misses in Jobless Claims should produce some movement even with Bernanke's Senate Q&A looming after 10am.  The 10am data itself--Philly Fed--is no slouch, offering another opportunity for data to try to move markets ahead of Bernanke.  1pm brings a 10yr TIPS auction which is occasionally relevant, but more in the sense that it's something to be aware of (as opposed to something we'd expect to make waves).