Overnight and early morning trading was as calm as summertime Mondays tend to be.  The day's first data--Empire State Manufacturing--doesn't typically move markets much.  This one was a different story. 

The Empire State index plummeted to a 6 year low of -14.92 from 3.86 previously.  The median forecast was +5.0.  New Orders, Shipments, and Inventories drove the losses, with no additional explanation offered that would help mitigate the negative reading.  Even in the employment component of the data, which looked "OK" at first glance, we see a steady decline in the 6-month outlook for "number of employees" expected on payroll at the businesses surveyed.

Bonds reacted immediately.  10yr yields dropped from 2.185 to 2.15 in a few minutes.  Fannie 3.5 MBS jumped from 103-12 to 103-18 just as quickly.  Neither have deviated much from those levels since the data.  All this in spite of strong gains in equities markets and strong Homebuilder Confidence data from NAHB.