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MBS RECAP: Bonds at The Whim of Trade Headlines

December 3, 2019
by admin

Bonds sold off clearly and somewhat abruptly following a Bloomberg article on the trade negotiations being in better shape than markets might assume based on the previous day’s trade headlines (which were also the biggest market movers of the day). All of the above completely superseded any potential impact from econ data. In fact, the big Miss in the ADP employment data had absolutely no effect and a mixed bag in the ISM services data only served for fuel more selling (for potential reasons I discussed in this update).

To paraphrase the update, the “new orders” component of the ISM data is the most forward looking, and traders are interested in the most forward looking data possible right now because none of the current crop of data is going to matter once the trade deal (or lack thereof) has its day. The only other way to explain the additional weakness after the ISM data would be to say that traders were inclined to sell more aggressively this morning but were waiting to make sure ISM wasn’t going to have a strong objection. That may sound like a bit of a reach, but it’s a real thing that happens–no more complicated than waiting for the flop in poker before making your bigger bets.

From here, we really need to ask ourselves on a daily basis how much faith we want to put in econ data as a potential market mover if trade headlines are still the biggest market mover in the room. Unfortunately, we have to continue to be on the lookout for market movement after data, but also on the lookout for that movement to be counter-intuitive if the trade headline du jour happens to disagree.

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