MBS Day Ahead: New Year Wastes no Time; Highly-Charged Calendar of Events

This week promises to be nothing like the last 2.  Market participation already began ramping back up on Friday and that should be exponentially true in the coming days.  Not only is it the first full week of 2015, but there are significant events to tackle as well. 

The first order of business for global financial markets this month will be digesting Eurozone news and developments.  Over the weekend, an interview with Mario Draghi (ECB President) in a German newspaper made the rounds.  Interestingly enough, the news first hit on Thursday, but wasn't credited as a market mover until early overnight trading today.  Even now, it's not so much that the interview is receiving credit from actual market participants as much as it is the last salient Draghi communication before an inexplicable drop to long term lows in the Euro.  This, in turn, led mainstream financial media to conclude the move in the Euro must be about the ECB getting oh-so-close to QE this month.

While the correlation between the interview and market movements leaves much to be desired, the underlying theme of 'European Central Bank action in January 2015' is a sound one.  While the ECB's meeting on the 7th (Wed) isn't to set policy, it does occur on the same day as Eurozone inflation metrics.  Markets will be keen to infer even more urgency if inflation keeps falling (or turns negative).  In the following week, there's an important vote in a German court that will heavily inform the ECB's perceived ability to directly buy sovereign bonds.  And a week after that, the ECB meets to set policy. 

Adding to the volatility is the looming Greek election, which falls AFTER the ECB Announcement.  That's interesting because if the ECB manages to announce QE that would benefit Greece before that election, and if the election is perceived to be changed as a result, the German officials who oppose QE would be utterly outraged and emboldened to fight it harder than ever.  That probably won't happen, but the fact that it COULD increases the potential volatility.

But before we get too far ahead, there's the simpler matter of US economic data in the current week.  Sure, it probably won't be as interesting in the bigger picture as the European data, but it's still important.  Highlights include Tuesday's ISM Non-Manufacturing Index, Wednesday's ADP, and Friday's Nonfarm payrolls.  Wednesday afternoon also brings the Minutes from the most recent FOMC Meeting at 2pm.