Slightly Weaker; Straightforward "Risk-On" Move Overnight
Some nights are a bit more esoteric when it comes to divining the inspiration for movement while other overnight sessions are fairly cut and dry. Last night was the latter with stronger economic data in Europe and some moderately risk-friendly economic headlines giving a boost to equities and pulling up core bond yields to boot.
The data in this case, was a series of non-manufacturing PMI's--all of which were at least as high as expected, with the UK and Germany expanding. Eurozone Retail Sales also beat expectations (1.2 vs 0.2). Italy's president is considering appointing a government in much the same way that Mario Monti was installed in late 2011, but separate news suggests the outside possibility that the currently divided factions--neither of which holding enough seats in the parliamentary house they failed to win--could come together in some weird and marginally effective way to at least pass some basic legislation. Because this is 'better' than reports of rampant discord and vitriolic backlash, it adds to the risk-on tone for broader European markets. Good for stocks, bad for bonds.
All that having been said, bond markets remain somewhat skeptical of the true efficacy that might be achieved if such a government were cobbled together (either the president-appointed option or the one involving Beppe Grillo). Bond markets may be weaker this morning, but the pall of apprehension surrounding Italy's political fate continues to weigh yields down since the initial reaction to last week's election.
As such, 10 yr yields held their ground relatively well vs hard-charging equities markets overnight. S&Ps are set to open at their highest levels since late 2007, up around 8 points from yesterday's close while 10's are up just over 1 bp. MBS are only 1 tick weaker currently at 103-16 while hitting lows of 103-13+ just after opening.
The only piece of domestic economic data in the US this morning is ISM Non-Manufacturing at 10am. The PMI ("purchasing managers index") is expected to show expansion with a reading of 55.0, which would be roughly in line with last month's expansion (55.2)