The Day Ahead: ECB Rate Decision and First Look at Third Quarter GDP

Yesterday

- Uneventful sideways slide for MBS, albeit at slightly stronger levels

- No significant data or events; narrowest trading range in 5 months

- Markets waiting for NFP Friday and maybe GDP Thursday

- 10yr yields recovered to mid 2.64's

Today

- Jobless Claims and GDP at 8:30am

- This is the first look at 3rd quarter GDP and it was delayed by the shutdown

- Impact mitigated by jobs report tomorrow

- Bond markets still haven't made up their mind

Strategy

Yesterday, we held out the possibility of something interesting happening due to the Fed papers making rounds.  Nothing interesting happened.  That's not a value judgment on the validity of Fed speculation though.  In fact, the only Fed speaker of the day--Pianalto--added her name (again) to the hat of those Fed presidents and governors ostensibly concerned with effects of QE. 

We've heard them say things like "potential disruptions," "risks," or "could impede function" and other generalities when it comes to the supposed risks of ongoing QE, but details are lacking.  Whatever the case, Pianalto thinks the balance sheet expansion warrants caution, though she won't say why.  We'll take that under advisement and move on--seeing as how we're more interested in things that actually cause an immediate reaction in bond markets.

We already know that Friday's NFP will fit this bill, but what of today's data?  There's the 'with us as always' weekly Jobless Claims numbers, but we think markets are still getting over the odd behavior in Jobless Claims over the past few weeks of Californian computer upgrades and shutdown-related uncertainty.  Last week was the first "clean" number in more than a month, so it makes sense to give the data some space, at least until next week (which is NFP survey week for the November report).

More interesting this morning is the GDP data and the undertones that may precede it courtesy of the ECB rate decision.  In fact, the ECB news could make it look like GDP is having more of an effect than it is, but we'll cross that bridge if we come to it.  The ECB release is at 7:45am Eastern, but Draghi begins his press conference at 8:30am.

Any significant improvement (more than a few 10ths of a percent) in GDP, is likely cause for selling in bond markets.  That's pretty logical, but any significant miss is less easy to interpret as market participants may have grains of salt at the ready for October's "shutdown-tainted" data.

Charts

Current intermediate-term downtrend in yields.  Major resistance at 2.47, minor at 2.59.  Minor support at 2.67 and major support at 2.74.

Quarterly GDP from the mid 1990's; forecast for today in white.