It was a weak open to the holiday-shortened week. There were only low-level domestic reports that had zero impact on pricing. But rising German 10-year yields did have an impact and drove mortgage backed securities (MBS) below the 100 day moving average, which is a very important and negative technical trend.
MBS are expected to continue to sell off and be under pressure as the unwinding of long bond positions ahead of a possible European Central Bank taper is just starting. The fact that WTI is above $50 and the German 10-year is above zero are also providing enough pressure to break below that seemingly titanium 100 day moving average. Really, at this point instead of looking at things that will cause MBS to loose pricing, look at the counter-factual and look for things that might “buck the trend” and improve pricing. That would need to be a very dovish Janet Yellen on Friday, Oil dropping back below $50 (OPEC/Russia), and some official statements from the ECB that it’s like the “Newhart” show where they woke up and it was all a dream that a taper could be coming.”
Jobs, Jobs, Jobs: The newly created Labor Market Conditions Index was created as an experiment and has ended up being a joke. It fell from the revised August number of -1.3 down to -2.2% in September which basically goes against every established NFP/Wage report in existence.
Small Business Optimism: The National Federal of Independent Business survey for September hit 94.1 which is a small pull-back from August’s 94.4 but the percentage of small business owners saying that they expected better business conditions in the next six months jumped 12 points.
On Deck for Tomorrow: FNMA Coupon Rollover, JOLTS report, FOMC Minutes, 10 year Note auction.
Across the Pond
Eurozone: The ZEW Economic Sentiment for October more than doubled the September outlook, moving from 5.4 to 12.3 which handily beat out the forecasts of 6.3. This was led by Germany’s outlook which came in at 6.2 vs estimates of 4.0.