A deluge of data just flashed.

1. Producer prices trended lower for the third consecutive month led by a 2.2% decline in the volatile food and energy categories. Don't say deflation yet, say disinflation. BOND MARKET FRIENDLY
   
2. Jobless Claims fell by 29,000 to 429,000 (better than expected) on a seasonally adjusted basis but rose 44,855 on an unadjusted basis. Initial Claims have improved in 3 of the last 4 weeks and are now at the lowest level since August 23, 2008. BOND MARKET UNFRIENDLY BUT I DISCOUNT THIS DATA BECAUSE OF SEASONAL ADJUSTMENTS
   
3. Business Conditions in the New York region are weakening.  The Empire State Business Conditions Index came in at 5.08 vs. estimates for a read of 18.50. The Employees and Hours worked indices both declined. This calls attention to the effect of fading stimulus in the system.   BOND MARKET FRIENDLY

Plain and Simple: The improvement in jobless claims was great but not indicative of a broad based turn around in the labor market. Inflation is clearly not an issue at the moment, proving the only thing the markets should fear is fear itself ( in terms of price levels).  The sharp decline seen in the Empire Manufacturing Index is in line with recent changes in the Fed's rhetoric: the rate of economic expansion is slowing, the road to recovery will be long, slow, and filled with ups and downs. Rates will be low for some time...

08:30 15Jul10 RTRS-U.S. JUNE PPI -0.5 PCT (CONSENSUS -0.1 PCT) VS MAY -0.3 PCT
08:30 15Jul10 RTRS-U.S. JUNE YEAR-OVER-YEAR PPI +2.8 PCT (CONS +3.1), CORE +1.1 PCT (CONS +1.1 PCT)
08:30 15Jul10 RTRS-U.S. JUNE PPI INTERMEDIATE GOODS -0.9 PCT, EXFOOD/ENERGY -0.4 PCT
08:30 15Jul10 RTRS-U.S. JUNE PPI CRUDE GOODS -2.4 PCT, EXFOOD/ENERGY -4.8 PCT
08:30 15Jul10 RTRS-U.S. JUNE PPI ENERGY -0.5 PCT, GASOLINE -1.6 PCT, HEATING OIL -8.1 PCT
08:30 15Jul10 RTRS-US JUNE PPI FOOD -2.2 PCT, BIGGEST DROP SINCE APRIL 2002; TOBACCO +1.4 PCT, PASSENGER CARS -0.5 PCT, LIGHT TRUCKS -1.0 PCT
08:30 15Jul10 RTRS-TABLE-U.S. June producer prices fell 0.5 pct

08:30 15Jul10 RTRS-US JOBLESS CLAIMS FALL TO 429,000 JULY 10 WEEK (CONSENSUS 450,000) FROM 458,000 PRIOR WEEK (PREVIOUS 454,000)
08:30 15Jul10 RTRS-US JOBLESS CLAIMS 4-WK AVG FALL TO 455,250 JULY 10 WEEK FROM 467,000 PRIOR WEEK (PREVIOUS 466,000)
08:30 15Jul10 RTRS-US CONTINUED CLAIMS RISE TO 4.681 MLN (CON. 4.410 MLN) JULY 3 WEEK FROM 4.434 MLN PRIOR (PREV 4.413 MLN)
08:30 15Jul10 RTRS-US INSURED UNEMPLOYMENT RATE RISES TO 3.7 PCT JULY 3 WEEK FROM 3.5 PCT PRIOR WEEK (PREV 3.4 PCT)
08:30 15Jul10 RTRS-US NEW JOBLESS CLAIMS LOWEST SINCE WEEK ENDED AUG 23, 2008, BIGGEST DROP SINCE FEB 6, 2010
08:30 15Jul10 RTRS-TABLE-U.S. jobless claims fall in latest week

08:30 15Jul10 RTRS-NY FED'S EMPIRE STATE BUSINESS CONDITIONS INDEX 5.08 IN JULY (CONSENSUS 18.50) VS 19.57 IN JUNE
08:30 15Jul10 RTRS-NY FED'S EMPIRE STATE EMPLOYMENT INDEX AT 7.94 IN JULY VS 12.35 IN JUNE
08:30 15Jul10 RTRS-NY FED'S EMPIRE STATE NEW ORDERS INDEX 10.13 IN JULY VS 17.53 IN JUNE
08:30 15Jul10 RTRS-NY FED'S EMPIRE STATE PRICES PAID INDEX 25.40 IN JULY VS 27.16 IN JUNE
08:30 15Jul10 RTRS-NY FED'S EMPIRE STATE SIX-MONTH BUSINESS CONDITIONS EXPECTATIONS INDEX 41.27 IN JULY VS 40.74 IN JUNE
08:30 15Jul10 RTRS-NY FED'S EMPIRE STATE BUSINESS CONDITIONS INDEX AT LOWEST SINCE DEC 2009
08:30 15Jul10 RTRS-TABLE-N.Y. Fed manufacturing index 5.08 in July

S&Ps recently rejected long term lows at 1000 and have since rallied all the way back to 1100. After S&P futures failed to breach 1100 yesterday morning, a lack of buyside interest (mkt still net short) led to a retest of 1086, which held firm not once but twice.  While this is supportive of an extension of positive progress, there are still lots of short positions open which are hoping for a breakdown of 1086 support. This implies we're gonna need to see new money enter the market if stocks are to retest 1100

S&Ps are currently bid 2.50 handles lower at 1088.25. (1 tick = 0.25 . Each handle represents $50. That means the Sept delivery emini S&P futures contract is worth $54,412.50 right now)

While professional and institutional investors meddle in the illiquid equity environment, the benchmark 10-year note continues to illustrate the risk averse bias of the broader marketplace. On Tuesday I described this behavior as "reluctant". Although yields rose into the auction cycle, they've come back down to the levels seen prior to the 10yr note re-opening on Tuesday. The Commitment of Traders report tells us traders are still long this sector of the curve...

The 10yr note is currently +0-10 at 104-03 yielding 3.014%. We're heading toward a test of the psychological pivot point at 3.00%. Below that we find resistance at 2.98%.

Mortgage rates have been somewhat detached from the movements of MBS prices in the secondary market as lenders have been battling it out for business in the primary market. I wrote a post discussing this observation yesterday...do you guys think I should keep that sort of info on this blog channel? Too much info for consumers to take in?

Rate sheet influential MBS price levels are higher but production mortgages are lagging their benchmark guidance givers (yield spreads wider). Your loan pricing is now based on the September delivery 30 year MBS coupons. The Sept. FN 4.0 is +0-10 at 101-11. The FNCL 4.5 is +0-07 at 103-18. The secondary market current coupon is 4.1bps lower at 3.776%.

RISK ON OR RISK OFF?

Risk off for now. Bonds are catching a bid. Loan pricing should be better this morning.

From a fundamental perspective, risk markets have taken this bearishly skewed data into consideration, but that's about as far as we can go with fundamentals though. Technicals rule as this environment is dominated by short-term sentiment and noncommittal directional biases.