The non-manufacturing ISM index improved in September and beat expectations. 11 of 14 industries reported expansion.
Quick Recap:
10:00 05Oct10 RTRS-ISM REPORT ON U.S. NON-MANUFACTURING SECTOR SHOWS PMI AT 53.2 IN SEPTEMBER (CONSENSUS 52.0) VS 51.5 AUG
10:00 05Oct10 RTRS-ISM NON-MANUFACTURING BUSINESS ACTIVITY INDEX 52.8 IN SEPTEMBER (CONSENSUS 54.0) VS 54.4 IN AUG
10:00 05Oct10 RTRS-TABLE-U.S. ISM non-manufacturing index 53.2 in September
The 11 industries reporting growth in September based on the NMI composite index: Management of Companies & Support Services; Information; Professional, Scientific & Technical Services; Wholesale Trade; Utilities; Accommodation & Food Services; Finance & Insurance; Other Services; Health Care & Social Assistance; Retail Trade; and Transportation & Warehousing.
The three industries reporting contraction in September are: Mining; Public Administration; and Educational Services.
WHAT RESPONDENTS ARE SAYING ...
- "General state of the business has not changed in the last three months. The market is still soft for new sales due to financing requirements." (Construction)
- "Business seems to be flat from last month." (Finance & Insurance)
- "Signs that the economy may be improving, but our sector is still flat or declining." (Professional, Scientific & Technical Services)
- "Business activity is generally stable — slightly better than last year." (Accommodation & Food Services)
- "Third quarter is looking profitable with improving confidence and expectations in the economy. Capital expenditures are being approved." (Wholesale Trade)
COMMODITIES REPORTED UP / DOWN IN PRICE, and IN SHORT SUPPLY
Commodities Up in Price: Copper; Copper Fittings; Corn; Cotton; Cotton Products; #2 Diesel Fuel (3); Electronic Products; Food and Beverage; Fuel (9); and Paper.
Commodities Down in Price:Carbon Pipe; Gasoline; and Polyethylene Film.
Commodities in Short Supply: Coated Groundwood (3); Coated Freesheet; Medical Supplies; and Tires.
Plain and Simple: Improved vs. August and better than expected but below the index highs seen early in 2010. Mixed reports from respondents keep optimism tempered in the short term but a growing Employment index is a plus.
Market Reaction...
S&P futures extended their overnight bounce from the range lows and are currently retesting the high side of the recent range. Volume was strong into the uptrade, but if 1150 resistance fails to be broken again, volume will be just as strong on the way down (profit taking).
S&P futures are currently +18.50 at 1153.25...through 1150 resistance at the moment. Now we need to see confirmation. This rally was built on technicals though, not concrete fundamentals, so I see profit taking picking up before the end of the day.
Rate sheet influential MBS coupons have been generally stable since ISM flashed. Yield spreads are however wider as origination supply has picked up slightly (still not much) and dealers look to have covered shorts yesterday. Trading remains slow in MBS space and TSYs.
The November FNCL 4.0 is +0-01 at 102-26. If you're playing the range, this is an area of strong resistance. At this point, if you're floating, you're betting on a weak Employment Report on Friday. If that data is supportive of further FOMC QE...floating would pay off in the form of broadbased rebate offers at rates below 4.25%.
Keep an eye on stocks. If they hold positive progress and confirm the break of 1150 with some volume, and profit taking doesn't leave the equity market illiquid, benchmark yields will likely rise. While MBS will outperform if this happens, price levels will likely still fall. That is theory though. In reality, the bid for TSYs remains strong as the market has baked in better odds of more Quantitative Easing. This implies we should see bargain buying at the price lows/yield highs.
Loan pricing is better today, significantly at some lenders.
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