The Day Ahead: Empty Domestic Calendar Leaves EU In Focus

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Markets spent the day bouncing back from post-FOMC trading levels to pre-FOMC trading levels yesterday, but encountered well-defined resistance to further gains.  It’s not yet clear whether the resistance seen in 10’s and MBS yesterday was organic or whether bond markets were simply riding the coat-tails of an ailing risk climate in the Eurozone.  Whatever the case, 10yr yields clearly bounced at 1.60, Fannie 3.5’s at 102-26 and Fannie 3.0’s revisited their most frequent intermediate term high of 102-24.

Today’s trading may help shed some light on domestic concerns vs European.  There’s no scheduled data, leaving markets with a choice to tune in primarily to the headlines that will be trickling in from Europe or to the after hours Moodys downgrades from yesterday afternoon.  Our money is on Europe, not only because after hours trading did relatively little with the Moodys news, but also because the line-up is actually somewhat noteworthy

Germany’s version of the domestic ISM data is due out in the overnight session and will be important due to the nearly catastrophic fall seen in May (we’re not making this up).  If today’s numbers reinforce last month’s trend, bond markets will likely approve, all other things being equal.  In addition, there are two meetings–ECOFIN as well as a gathering of Euro-zone leaders in Rome to discuss the crisis.  The latter seems like the bigger potential consideration, but either could produce market-relevant headlines

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