The first day of the week and month served up a timely reminder about the importance of domestic economic data in what might otherwise seem to be a marketplace dominated by European considerations.  Yesterday's ISM index fell below 50 for the first time since July 2009 and well short of expectations.  Markets responded with the highest half hour of volume since June 1st, carrying 10yr yields back into the 1.5's and Fannie 3.0 MBS over 103-00.  

We suspect that bigger snowballs remained in check owing to the relatively tame EMPLOYMENT component in the ISM data.  Of all the report's major components, employment was the only part that was even close to the previous reading or consensus estimates.  The fact that the 2nd half of this week is heavily focused on employment reports probably didn't hurt it's chances.  

All that notwithstanding, markets clearly moved on domestic data.  Despite the one potential exception in the form of the ECB Rate Decision on Thursday, we think that this will continue to be a week that is predominantly focused on domestic economic data as an ongoing acid test for the likelihood of further Fed easing.  With the 4th of July literally at the center of the trading week, what could be more fitting?

Today's contributions to this week of American economic focus are probably the weakest of the bunch with only Factory Orders and ISM-New York on tap.  In addition, there will be revisions to the latest Durable Goods reading, but none of the above are top shelf events.  To be fair to Europe, IMF's Christine Lagarde will be delivering a report at the same time as Factory Orders at 10am, but in a clever twist of fate, it's on the U.S. economy.

After the morning festivities, bond markets close early at 2pm, but as is often the case--especially when full days off follow--it would be fair to expect the level of participation to be smaller than normal out of the gate and to decrease earlier than usual.  Keep in mind that low volume can distort trading levels in that remaining market participants can account for a larger percentage of volume than they otherwise would.  This is normally more of an academic phenomenon than a reality, but it gets real sometimes.  Even then, it would have to get really real to pose any sort of threat to the recently established range that can't be completely undone come Thursday/Friday.