What’s on the Agenda for this Week?
Wow! The stock market (as measured by the DJIA) had its worst open in 84 years, -415 points. And mortgage backed securities (MBS) up only +15 basis points (BPS)?
Overview
A very interesting open to 2016. A Chinese stock market crash set the stage for MBS to rally as demand spiked out of the gate in search of safety. Then we got the one-two punch of weaker than expected manufacturing and construction data.
Domestic Flavor
Manufacturing: ISM Manufacturing was much weaker than expected (48.2 vs estimates of 49.0) and marks the second straight month (November and December) with readings of below 50, which is very contractionary. This type of miss to the downside is usually very positive for bonds. However, this is not the ONLY report that measures manufacturing. We also got the Markit PMI report this morning and it was 51.2, and that report shows economic and manufacturing expansion. So, this is a mixed bag.
Construction Spending: The December reading was much weaker than expected (-0.4% vs estimates of +0.5%), plus November was revised downward significantly from 1.0% down to 0.3%. Construction Spending had been a bright spot for our economy, but all the monthly readings going back to January have been revised lower due to a processing error in inputting a particular data set.
On Deck for Tomorrow: A fairly quiet day with only Total Vehicle Sales on the agenda.
Across the Pond
China: The CSI300 index of the largest listed companies in Shanghai and Shenzhen lost 7.0% before trading was suspended, its worst single-day performance since late August 2015. It was the first time that the new “triggers” had been used after the last implosion. This scared a lot of money right into our good old U.S. Treasuries and Mortgage Backed Securities.