With a full market working and strong domestic data this morning, experts assumed mortgage backed securities (MBS) would have a down day. MBS were driven lower but pricing improved in afternoon trading as WTI Oil dropped 2.6%, which is a large intra-day move. The market was waiting for OPEC and Non OPEC production data to see if the recent “freezes,” which are supposed to be in effect, would actually go into place. Today, Iran said the Kurdish were pumping like crazy and not under their control and Libya (exempt from a production freeze) ramped up production levels and increased supply in the open market place.
There is no academic nor compelling reason to expect that skewed improvements over the past two weeks is actually a trend reversal because it is not.
Manufacturing: The December national ISM Manufacturing Index was much stronger than expected (54.7 vs estimates of 53.6). It was the best reading since exactly two years ago when the January 2015 release (December’s data) hit 55.5. Anything above 50 is expansionary and a reading in the mid-50s is very strong indeed.
Construction Spending: The November data was almost double the market expectations (0.9% vs estimates of 0.5%). There was real strength in private and commercial construction.
On Deck for Tomorrow: ADP Private Payrolls, FOMC Minutes and Total Vehicle Sales.
Across the Pond
China (#2 economy): The December PMI was much stronger than expected with a 51.9 vs 50.7 reading.
Germany: (#4 economy): Their Unemployment Rate remained at 6.00% but there was an increase in inflation with their CPI YOY hitting 1.7% vs estimates of 1.5%.