The stock sell-off that began 2pm seems most readily...

S&P's can't seem to make it through 1525 intraday, and the latest attempt has resulted in a quick flush lower to the tune of roughly 6 points. That's been good just over a 1bp bounce lower in 10yr yields and about 3 ticks of bounce back for Fannie 3.0s. The latter are off their earlier 102-22+ lows, now back to 102-25+.

We'd note that there's palpable hesitation for bigger moves in either direction so a break above current levels isn't a given. If we see it, great... Even if we hold near here, the most recent incremental increase in reprice risk is definitely mitigated by this bounce, though not completely erased.

Another hour, another few ticks down for MBS. We'd...

The outlook for growth in the U.S. economy over the next three years looks mostly unchanged from that of three months ago, according to 46 forecasters surveyed by the Federal Reserve Bank of Philadelphia. The panel expects real GDP to grow at an annual rate of 2.1 percent this quarter and 2.3 percent next quarter and to rise to 2.7 percent in the first quarter of 2014. On an annual-average over annual-average basis, the forecasters see real GDP growing 1.9 percent in 2013, down slightly from the previous estimate of 2.0 percent. The forecasters predict real GDP will grow 2.8 percent in 2014, 2.9 percent in 2015, and 3.0 percent in 2016.

Healthier conditions in the labor market accompany the nearly stable outlook for real output. The forecasters predict that the unemployment rate will be an annual average of 7.7 percent in 2013, before falling to 7.2 percent in 2014, 6.7 percent in 2015, and 6.3 percent in 2016. These projections are below those of the last survey.

The forecasters are also more optimistic about the employment front. They have revised upward their estimates of the growth in jobs in the next four quarters. The forecasters see nonfarm payroll employment growing at a rate of 165,300 jobs per month this quarter and 154,200 jobs per month next quarter. The forecasters’ projections for the annual-average level of nonfarm payroll employment suggest job gains at a monthly rate of 164,100 in 2013 and 176,800 in 2014, as the table below shows. (These annual-average estimates are computed as the year-to-year change in the annual-average level of nonfarm payroll employment, converted to a monthly rate.)

The less favorable eventuality is unfolding following...

- Sentiment 76.3 vs 74.8 Consensus
- Current conditions 88 vs 85.5 consensus
- Expectations 68.7 vs 67.2
- headline sentiment highest since November

Consumer Sentiment coming up at 9:55am and bond markets have been ratcheting very modestly weaker as stock futures rallied into the opening bell. No major gyrations at 9:30am with S&P's actually falling a bit at the open. Ranges are tight and the stock lever is well connected (though bond markets are yet further removed from "major gyrations," even if gently following the stocks.

With 3 minutes before data, MBS are at their lows of the morning, down 4 ticks on the day at 102-27. Only 1-2 ticks of that have come since the first rate sheets of the day, making for limited (very limited) negative reprice risk. Accelerating losses after Sentiment could evolve the risk into something more ambulatory, but for now, just waiting on data.

- Industrial Output -0.1 pct vs +0.2 pct consensus
- Dec revised to +0.4 from +0.3
- Capacity Utilization 79.1 vs 78.9 consensus
- Manufacturing -0.4 vs +1.1 in Dec (revised up from 0.8)

Industrial production edged down 0.1 percent in January after having risen 0.4 percent in December. In January, manufacturing output decreased 0.4 percent following upwardly revised gains of 1.1 percent in December and 1.7 percent in November. For the fourth quarter as a whole, manufacturing production is now estimated to have advanced 1.9 percent at an annual rate; previously, the increase was reported to have been 0.2 percent. In January, the output of utilities rose 3.5 percent, as demand for heating was boosted by temperatures that fell closer to their seasonal norms; the production at mines declined 1.0 percent. At 98.6 percent of its 2007 average, total industrial production in January was 2.1 percent above its level of a year earlier. The capacity utilization rate for total industry decreased in January to 79.1 percent, a rate that is 1.1 percentage points below its long-run (1972--2012) average.

Bond markets began the overnight session in positive territory on weaker Asian equities markets and strengthening in Yen. 10yr yields remained well correlated with Yen throughout the session, with both turning a weaker corner around 4:30am, along with German Bunds. As is frequently the case, Bunds set the tone for most of the European session and led the charge (gently) higher in yield for Treasuries.

10's came in the door almost perfectly in line with yesterday's closing marks, as did MBS, with both weakening slightly before and after stronger-than-expected NY Fed Manufacturing data. Fannie 3.0s began at 102-30+ and are down two ticks to 102-28+ at the moment. S&P's have clawed back from a few points of weakness overnight to sit almost perfectly in line with yesterday's close.

With Empire State out of the way, and the stronger reading having been weathered well by bond markets, attention shifts to Industrial Production at 9:15am followed by an eye on the stock lever at the 9:30 opening bell and Consumer Sentiment at 9:55am.

So far markets are looking "well-behaved," into a 3-day weekend, and our belief in a genuine indecisiveness among traders regarding current levels is playing out well so far. Big surprises in data may change that, and the afternoon before a 3-day weekend can always "leak" in either direction, but apart from those eventualities (and perhaps big G20 headlines), so far, so good.

- Business Conditions +10.04 vs -2.0 consensus, -7.78 in Jan
-Employment +8.08 vs -4.3 in Jan
- New Orders +13.31 vs 7.18 in Jan, Highest since May 2011 The February 2013 Empire State Manufacturing Survey indicates that conditions for New York manufacturers improved for the first time since the summer of last year. The general business conditions index rose into positive territory, advancing eighteen points to 10.0. The new orders index also rose sharply, climbing twenty points to 13.3, and the shipments index increased to 13.1. The prices paid index pointed to a continued acceleration in selling prices, and the prices received index, while positive, inched lower. The index for number of employees rose for a third consecutive month and, at 8.1, registered its first positive reading since September, though the average workweek index remained negative. Indexes for the six-month outlook were noticeably higher and suggested a firming in the level of optimism about future business conditions.

In a series of supplementary questions, manufacturers were asked about their 2013 capital spending plans and how the plans compared with actual spending for 2012. Roughly the same proportion of respondents indicated that they expected to raise as to lower capital spending this year. However, the median amount budgeted for 2013 was up 11 percent from what had reportedly been spent in 2012. The most widely cited factor constraining 2013 capital investment plans was tax and regulatory considerations. In the February 2012 and 2011 surveys, more respondents had identified this as a positive than a negative factor.

The stock sell-off that began 2pm seems most readily...

S&P's can't seem to make it through 1525 intraday, and the latest attempt has resulted in a quick flush lower to the tune of roughly 6 points. That's been good just over a 1bp bounce lower in 10yr yields and about 3 ticks of bounce back for Fannie 3.0s. The latter are off their earlier 102-22+ lows, now back to 102-25+.

We'd note that there's palpable hesitation for bigger moves in either direction so a break above current levels isn't a given. If we see it, great... Even if we hold near here, the most recent incremental increase in reprice risk is definitely mitigated by this bounce, though not completely erased.

Another hour, another few ticks down for MBS. We'd...

The outlook for growth in the U.S. economy over the next three years looks mostly unchanged from that of three months ago, according to 46 forecasters surveyed by the Federal Reserve Bank of Philadelphia. The panel expects real GDP to grow at an annual rate of 2.1 percent this quarter and 2.3 percent next quarter and to rise to 2.7 percent in the first quarter of 2014. On an annual-average over annual-average basis, the forecasters see real GDP growing 1.9 percent in 2013, down slightly from the previous estimate of 2.0 percent. The forecasters predict real GDP will grow 2.8 percent in 2014, 2.9 percent in 2015, and 3.0 percent in 2016.

Healthier conditions in the labor market accompany the nearly stable outlook for real output. The forecasters predict that the unemployment rate will be an annual average of 7.7 percent in 2013, before falling to 7.2 percent in 2014, 6.7 percent in 2015, and 6.3 percent in 2016. These projections are below those of the last survey.

The forecasters are also more optimistic about the employment front. They have revised upward their estimates of the growth in jobs in the next four quarters. The forecasters see nonfarm payroll employment growing at a rate of 165,300 jobs per month this quarter and 154,200 jobs per month next quarter. The forecasters’ projections for the annual-average level of nonfarm payroll employment suggest job gains at a monthly rate of 164,100 in 2013 and 176,800 in 2014, as the table below shows. (These annual-average estimates are computed as the year-to-year change in the annual-average level of nonfarm payroll employment, converted to a monthly rate.)

The less favorable eventuality is unfolding following...

- Sentiment 76.3 vs 74.8 Consensus
- Current conditions 88 vs 85.5 consensus
- Expectations 68.7 vs 67.2
- headline sentiment highest since November

Consumer Sentiment coming up at 9:55am and bond markets have been ratcheting very modestly weaker as stock futures rallied into the opening bell. No major gyrations at 9:30am with S&P's actually falling a bit at the open. Ranges are tight and the stock lever is well connected (though bond markets are yet further removed from "major gyrations," even if gently following the stocks.

With 3 minutes before data, MBS are at their lows of the morning, down 4 ticks on the day at 102-27. Only 1-2 ticks of that have come since the first rate sheets of the day, making for limited (very limited) negative reprice risk. Accelerating losses after Sentiment could evolve the risk into something more ambulatory, but for now, just waiting on data.

- Industrial Output -0.1 pct vs +0.2 pct consensus
- Dec revised to +0.4 from +0.3
- Capacity Utilization 79.1 vs 78.9 consensus
- Manufacturing -0.4 vs +1.1 in Dec (revised up from 0.8)

Industrial production edged down 0.1 percent in January after having risen 0.4 percent in December. In January, manufacturing output decreased 0.4 percent following upwardly revised gains of 1.1 percent in December and 1.7 percent in November. For the fourth quarter as a whole, manufacturing production is now estimated to have advanced 1.9 percent at an annual rate; previously, the increase was reported to have been 0.2 percent. In January, the output of utilities rose 3.5 percent, as demand for heating was boosted by temperatures that fell closer to their seasonal norms; the production at mines declined 1.0 percent. At 98.6 percent of its 2007 average, total industrial production in January was 2.1 percent above its level of a year earlier. The capacity utilization rate for total industry decreased in January to 79.1 percent, a rate that is 1.1 percentage points below its long-run (1972--2012) average.

Bond markets began the overnight session in positive territory on weaker Asian equities markets and strengthening in Yen. 10yr yields remained well correlated with Yen throughout the session, with both turning a weaker corner around 4:30am, along with German Bunds. As is frequently the case, Bunds set the tone for most of the European session and led the charge (gently) higher in yield for Treasuries.

10's came in the door almost perfectly in line with yesterday's closing marks, as did MBS, with both weakening slightly before and after stronger-than-expected NY Fed Manufacturing data. Fannie 3.0s began at 102-30+ and are down two ticks to 102-28+ at the moment. S&P's have clawed back from a few points of weakness overnight to sit almost perfectly in line with yesterday's close.

With Empire State out of the way, and the stronger reading having been weathered well by bond markets, attention shifts to Industrial Production at 9:15am followed by an eye on the stock lever at the 9:30 opening bell and Consumer Sentiment at 9:55am.

So far markets are looking "well-behaved," into a 3-day weekend, and our belief in a genuine indecisiveness among traders regarding current levels is playing out well so far. Big surprises in data may change that, and the afternoon before a 3-day weekend can always "leak" in either direction, but apart from those eventualities (and perhaps big G20 headlines), so far, so good.

- Business Conditions +10.04 vs -2.0 consensus, -7.78 in Jan
-Employment +8.08 vs -4.3 in Jan
- New Orders +13.31 vs 7.18 in Jan, Highest since May 2011 The February 2013 Empire State Manufacturing Survey indicates that conditions for New York manufacturers improved for the first time since the summer of last year. The general business conditions index rose into positive territory, advancing eighteen points to 10.0. The new orders index also rose sharply, climbing twenty points to 13.3, and the shipments index increased to 13.1. The prices paid index pointed to a continued acceleration in selling prices, and the prices received index, while positive, inched lower. The index for number of employees rose for a third consecutive month and, at 8.1, registered its first positive reading since September, though the average workweek index remained negative. Indexes for the six-month outlook were noticeably higher and suggested a firming in the level of optimism about future business conditions.

In a series of supplementary questions, manufacturers were asked about their 2013 capital spending plans and how the plans compared with actual spending for 2012. Roughly the same proportion of respondents indicated that they expected to raise as to lower capital spending this year. However, the median amount budgeted for 2013 was up 11 percent from what had reportedly been spent in 2012. The most widely cited factor constraining 2013 capital investment plans was tax and regulatory considerations. In the February 2012 and 2011 surveys, more respondents had identified this as a positive than a negative factor.

The outlook for growth in the U.S. economy over the next three years looks mostly unchanged from that of three months ago, according to 46 forecasters surveyed by the Federal Reserve Bank of Philadelphia. The panel expects real GDP to grow at an annual rate of 2.1 percent this quarter and 2.3 percent next quarter and to rise to 2.7 percent in the first quarter of 2014. On an annual-average over annual-average basis, the forecasters see real GDP growing 1.9 percent in 2013, down slightly from the previous estimate of 2.0 percent. The forecasters predict real GDP will grow 2.8 percent in 2014, 2.9 percent in 2015, and 3.0 percent in 2016.

Healthier conditions in the labor market accompany the nearly stable outlook for real output. The forecasters predict that the unemployment rate will be an annual average of 7.7 percent in 2013, before falling to 7.2 percent in 2014, 6.7 percent in 2015, and 6.3 percent in 2016. These projections are below those of the last survey.

The forecasters are also more optimistic about the employment front. They have revised upward their estimates of the growth in jobs in the next four quarters. The forecasters see nonfarm payroll employment growing at a rate of 165,300 jobs per month this quarter and 154,200 jobs per month next quarter. The forecasters’ projections for the annual-average level of nonfarm payroll employment suggest job gains at a monthly rate of 164,100 in 2013 and 176,800 in 2014, as the table below shows. (These annual-average estimates are computed as the year-to-year change in the annual-average level of nonfarm payroll employment, converted to a monthly rate.)

- Sentiment 76.3 vs 74.8 Consensus
- Current conditions 88 vs 85.5 consensus
- Expectations 68.7 vs 67.2
- headline sentiment highest since November

- Industrial Output -0.1 pct vs +0.2 pct consensus
- Dec revised to +0.4 from +0.3
- Capacity Utilization 79.1 vs 78.9 consensus
- Manufacturing -0.4 vs +1.1 in Dec (revised up from 0.8)

Industrial production edged down 0.1 percent in January after having risen 0.4 percent in December. In January, manufacturing output decreased 0.4 percent following upwardly revised gains of 1.1 percent in December and 1.7 percent in November. For the fourth quarter as a whole, manufacturing production is now estimated to have advanced 1.9 percent at an annual rate; previously, the increase was reported to have been 0.2 percent. In January, the output of utilities rose 3.5 percent, as demand for heating was boosted by temperatures that fell closer to their seasonal norms; the production at mines declined 1.0 percent. At 98.6 percent of its 2007 average, total industrial production in January was 2.1 percent above its level of a year earlier. The capacity utilization rate for total industry decreased in January to 79.1 percent, a rate that is 1.1 percentage points below its long-run (1972--2012) average.

- Business Conditions +10.04 vs -2.0 consensus, -7.78 in Jan
-Employment +8.08 vs -4.3 in Jan
- New Orders +13.31 vs 7.18 in Jan, Highest since May 2011 The February 2013 Empire State Manufacturing Survey indicates that conditions for New York manufacturers improved for the first time since the summer of last year. The general business conditions index rose into positive territory, advancing eighteen points to 10.0. The new orders index also rose sharply, climbing twenty points to 13.3, and the shipments index increased to 13.1. The prices paid index pointed to a continued acceleration in selling prices, and the prices received index, while positive, inched lower. The index for number of employees rose for a third consecutive month and, at 8.1, registered its first positive reading since September, though the average workweek index remained negative. Indexes for the six-month outlook were noticeably higher and suggested a firming in the level of optimism about future business conditions.

In a series of supplementary questions, manufacturers were asked about their 2013 capital spending plans and how the plans compared with actual spending for 2012. Roughly the same proportion of respondents indicated that they expected to raise as to lower capital spending this year. However, the median amount budgeted for 2013 was up 11 percent from what had reportedly been spent in 2012. The most widely cited factor constraining 2013 capital investment plans was tax and regulatory considerations. In the February 2012 and 2011 surveys, more respondents had identified this as a positive than a negative factor.