Markets will be officially closed on Thursday in observance of the Thanksgiving holiday. Although SIFMA recommends an "early close" for Friday's trading, that's essentially a holiday as well. Historically, liquidity and volume on post-Thanksgiving Fridays have been quite low. That means that whatever markets will do this week, they have only 3 days in which to do it. A majority of the data is crammed into Wednesday, making that a possible focal point of the week's trading. It wouldn't be a big surprise to see things taper off a bit earlier than normal though, as folks gear up for the long weekend.
Treasuries are stronger overnight and MBS are underperforming (currently up 2 ticks to 101-23 in Fannie 3.5's) after a moderately interesting night of European and even domestic headlines. On the homefront, the story making rounds this morning is that of the Supercommittees impending failure to reach a budget deal over the weekend, and anticipated failure to meet tonight's midnight deadline to avoid "failsafe triggers" of automatic budget cuts of $1.2 trln, including $600 bln in defense cuts. More than a few have chalked up this morning's flight-to-safety to that news, but there's plenty going on in Europe that could be benefiting Treasuries. Here's a look at how the Euro really led the charge lower with S&P futures and 10yr yields merely following the leader, followed by this morning's alert from MBS Live:
MBS Open Anemically Stronger as Treasuries Rise in Flight-to-Safety 8:32 AM
The US Supercommittee charged with developing a plan to stave off another budget shortfall is expected to announce their failure today to meet a midnight deadline on an agreement. Such a failure would trigger automatic budget cuts that would go into effect in 2013. So given the fact that there's no immediate fallout from a potential failure today, we're a bit skeptical about accepting the notion that the Supercommittee's failure is a major market mover this morning.
Instead we see the following as the primary drivers and the aforementioned committee failure as a potential complementary player:
- Spanish yields moved higher overnight as The Telegraph reports that Traders are braced for a turbulent day amid warnings that Spains newly-elected Prime Minister Mariano Rajoy lacks the policies needed to stave off a bail-out."
- France has the weakest economic fundamentals of the 6 top-rated countries in the EU and Moody's warned about their ratings outlook overnight.
- After some optimism swept through markets on Friday over the burgeoning potential of a "Eurobond," there has been a slight pull-back in that optimism as EU's Barnier says that stricter oversight was needed before a Eurobond was possible.
-Italian CDS widened appreciably (a fact that was reported via Markit just shortly before the most major slide in the Euro during the overnight session)
-The Times reports that options investors are paying record prices to guard against a bear market in stocks for 2012
The first major economic data of the day is Existing Home Sales at 10m followed by the 1pm auction of 2yr Treasury Notes.
MBS are up a mere 1/32nd at 101-22 in Fannie 3.5's while Treasuries outperform with 10yr yields down over 5bps at 1.9533. All in all though, a measured move within the range. Hopefully MBS will do a bit of catching up as the day progresses.
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KEY EVENTS THIS WEEEK:
MONDAY:
- 10am - Existing Home Sales. Expected to fall to a 4.70 mln annual rate following last month's reading of 4.91 mln.
- 1pm - 2yr Treasury Note Auction
- 230pm - Fed-Speak: Dennis Lockhart
TUESDAY
- 830am - Corporate Profits. After showing a 4.3% gain in the previous report, Corporate Profits are expected to have slowed to a 3.5% rate of growth
- 830am - Real GDP - seen as unchanged from the advance reading of 2.5%. The only major component in which economists polled by Reuters expected a chance was a rise in Sales from 3.6% to 3.8%
- 1pm 5yr Treasury Note Auction
- 2pm FOMC Minutes (from 11/2/11 meeting)
WEDNESDAY
- 7am MBA Applications
- 830am Durable Goods - new orders are expected to have fallen from -0.6% previously to -1.0%. Last month's strong +1.8% that excluded transportation is seen falling to 0.0% this month, while the numbers exclusing defense and aircraft are seen falling from +2.9% last month to -0.6%
- 830am Personal Income/Outlays - Income seen rising to 0.3% from 0.1% last month. Consumption (outlays) seen falling to 0.4% from 0.6% last month. PCE price index seen rising 0.1% month-over-month
- 830am Jobless Claims - After last week's 388k, Jobless Claims are expected to have risen slightly to 390k with continued claims at 3.605 mln vs 3.608 mln.
- 955am Consumer Sentiment (Final) - Seen roughly unchanged at 64.5 versus last month's 64.2.
- 1pm 7yr Treasury Note Auction
THURSDAY
- MARKETS CLOSED FOR THANKSGIVING HOLIDAY
FRIDAY
- SIFMA RECOMMENDED EARLY CLOSE (2PM EASTERN)
- No major economic data