Whereas Tuesday was exceptionally light in terms of scheduled economic data and events, Wednesday begins three days with significantly more for markets to digest.  As previously noted, there are so many balls in the air over the next two weeks than any individual event has less than its traditional level of potency as far as market movement is concerned.  That even remains true for Fiscal Cliff headlines which refreshingly, must actually MEAN SOMETHING before markets pitch and roll in response.  The other risk is that the headlines we're seeing DO, in fact mean something in that they've largely alluded to failure and we're consequently seeing little movement because failure is largely priced-in to trading levels.  Here's what we had to say about it on Monday:

The latest on the Fiscal Cliff can be summed up in one word: impasse.  The dangerous thing about an impasse, specific to MBS and mortgage markets, is that failure to resolve the Fiscal Cliff will be (or already is) increasingly priced-in.  In other words, trading levels reflect and will continue to reflect some level of expectation that the Fiscal Cliff is not resolved.  That essentially leaves any positive news as risking periodic negative shocks to bond markets, which at least could cause additional volatility--not the best situation for mortgage rates.

Specifically on the Fiscal Cliff topic, not much has changed in the first two sessions of the week, though we would note that markets responded to Monday's weak ISM data enough that we noticed the correlation, and that's a lot these days!  Perhaps it suggests that, in the absence of the need to sit on the edge of our seats waiting for Fiscal Cliff news, we can instead take a deep breath and take a bit of guidance from the week's economic data until something that's actually meaningful happens with the Cliff.

To that end, Wednesday offers up a fair bit of meat before Friday's bigger game comes into view.  While it's no NFP (the "non-farm payrolls" component of the Employment Situation Report, scheduled to be released on Friday at 8:30am), today's ADP at 8:15am still benefits from its recent facelift.  Markets are still feeling out the new level of correlation, but should continue to pay extra attention for the next few months.  The Productivity and Costs report follows 15 minutes later, but is perhaps the less compelling report due to its backward looking nature (cover "Q3") in a market that's uncommonly focused on the future.

In other words, data from the third quarter could essentially say anything it wants as it will take a sustained effort across multiple sectors for multiple months in order to unwind the screws that currently keep interest rates pinned down near current levels.  With that in mind, we might also cast a bit of a dismissive eye toward the October Factory Orders data at 10am, preferring the November ISM Non-Manufacturing numbers at the same time.  In addition to the economic data in the morning, there's another round of Fed Twist buying in the 8.5-10yr maturity range.