MBS Day Ahead: The Fed's Data Dependent. Here Comes Some Data!

As we discussed in yesterday's close, The general message received from the FOMC Minutes is that the Fed is far more dependent on incoming data than their recent rhetoric might suggest.  By "recent rhetoric," I'm referring to various speeches and Q&A where Fed officials have opined on the merit of raising rates at least once in 2015.  Conversely, yesterday's Fed minutes could be read as precluding a rate hike indefinitely until both the domestic and global economies get their acts together.

What would the domestic economy have to do?  Keep creating jobs and solve the mystery of creating inflation.  The Fed's pretty sure that it'll eventually happen when oil eventually bottoms out heads back up.  Hey!  Maybe the "bottoming out and heading back up" of oil in March set the stage for Fed's ostensible over-confidence in the rate hike outlook?

The above chart is either insightful analysis, or an example of how people who write stuff on the internet can use charts and apparent logic to convince other people things that aren't true.  I'm not sure how insightful it is, so please don't be convinced about anything.  I'm just saying there's a correlation here, and whether it's a chicken or egg is a matter of some debate.  It does stand to reason though, given the Fed's often-repeated point about transitory impact of energy prices on inflation, that bond markets would be paying at least some attention. 

The alternative is to view oil prices as merely another symptom of a stagnant global economy that correlates with bond yields simply because both tend to head lower when the outlook is gloomier.  Hmmm... Now that I say the second thing there, the first thing actually does sound pretty good.  Still, your call.

Today's data includes 2, possibly 3 relevant reports.   Jobless Claims hasn't been much of a market mover for quite a while now, but if there's one week of the month where it has a better chance to move markets, it's the week whose data coincides with the week the NFP survey is conducted.  That would be today's report.  Even then, the Philly Fed index and Existing Home Sales have a better chance of affecting bond markets at 10am. 

The market's reaction is very interesting in the bigger picture considering yesterday's rally helped moved this week's trading range outside 2015's uptrend.  Same thing happened last week with the China currency drama, but rates bounced back.  If they do NOT bounce back up into that trend this week, it would be another feather in the cap of the recent trend of improvement.