MBS Day Ahead: Are Markets Really Ready To Rethink a Rate Hike?

I saw a lot of this type of stuff yesterday, both in the news and in less public circles: something to the effect of the recently weak data giving the Fed pause when it comes to the relative certainty of a December rate hike.  I must say I'm really not sure what has changed in 2 days. 

Monday saw a much weaker Chicago PMI, but no bond market reaction.  To be sure, bonds rallied a bit, but they'd already done so by the time Chicago PMI came out. 

Yesterday's rally was more serious business apart from the fact that multi-week low yields were already broken by the time the now-notorious ISM Manufacturing data came out.  Are we to believe that market participants have gone from "not caring" about manufacturing data to "caring" in one day?  After all, we've been giving the manufacturing sector a pass  due to offshore jobs and robots and such.  It's been consistently weaker all year and markets haven't been much concerned, so why now?

Why now indeed!  I don't imagine the average trader is too terribly concerned about yesterday's ISM data, even if they said so on national TV.  After all, to admit surprise at manufacturing weakness would be to admit that you're not paying attention.  Granted, this report was a bit more than merely weak, but a game-changer it's not.  Incidentally, the trading response corroborates my cynicism here:

Now for the twist.  While I am indeed saying that the ISM data isn't a Fed game changer, I wouldn't be so quick to say the Fed is opposed to the idea of having its game changed.  We've gotten a few clues about this recently with the strange comments from several Fed officials about global rates getting permanently stuck near zero.  We also have the European Central Bank very likely adding accommodation on Thursday--something that sort of helps the Fed accomplish its goals without as much rate hike urgency.

So with all of the above in mind, perhaps the ISM data was just a reminder that we're gearing up for a deluge of Fed speeches through the rest of the week, beginning with 2 rounds of Yellen today at 8:30am and 12:25pm.  Of course there's ADP Employment as well, but that's about it as far as significant data is concerned.