Today's election continues to dominate the near term outlook.  Who knows exactly how long this may have been the case?!  But certainly, Friday's paradoxical reaction to the stronger-NFP numbers suggested that election front-running could be the biggest market mover in the room.  Here's a bit more detailed play by play for those interested in reading election significance into Friday's market movements adapted from The Week Ahead:

 

  • Bullish NFP numbers increased probability of Obama victory
  • Herd mentality is that Romney = better for stocks, worse for bonds, less friendly than current administration for MBS
  • Bond markets sold off at first (because that's what they do when NFP beats the consensus), but ended up rallying.  
  • Stocks rallied at first (because that's what stocks do when NFP beats the consensus), but ended up selling off.
  • MBS outperformed Treasuries into the rally/bounce which would be consistent with markets viewing Obama as more MBS-friendly than Romney
We and the herd may both be grasping at straws when it comes to this flowchart, but it's the best we have for now.  Conveniently, we won't have to wait long to determine how relevant it might be considering today is election day.  That said, election results won't be a factor in tomorrow's markets even if their looming presence serves again to keep things muted.
This was the case on Monday as things were subdued for the most part.  Bond markets continued their generally upbeat cadence but without overdoing it.  This could continue to be the case today as markets continue to wait for the election results.  With domestic economic data stone silent, the dark horse in the near term is Europe.  It's not that there's one watershed event for Europe in the coming days but rather, we sense that the broader tides of European risk-aversion are beginning to build again.  We doubt any Euro-drama trumps the US election (if for no other reason that folks are just waiting to see what happens afterward), but it might not be far behind.

 

MBS Live Econ Calendar:

Week Of Mon, Oct 29 2012 - Fri, Nov 2 2012

Time

Event

Period

Unit

Forecast

Prior

Mon, Oct 29

10:00

ISM Non-Manufacturing PMI

Oct

--

54.5

55.1

Tue, Oct 30

13:00

3-Yr Note Auction

--

--

--

--

Wed, Oct 31

07:00

MBA Purchase Index

w/e

--

--

--

07:00

Mortgage refinance index

w/e

--

--

--

13:00

10-Yr Note Auction

--

--

--

--

Thu, Nov 1

08:30

Initial Jobless Claims

w/e

k

370

369

13:00

30-Yr Bond Auction

--

--

--

--

Fri, Nov 2

08:30

Import Prices

Oct

pct

-0.1

+1.1

09:55

Consumer Sentiment

Nov

--

83.0

82.6

10:00

Wholesale Inventories

Sep

Pct

+0.4

+0.5

* mm: monthly | yy: annual | qq: quarterly | "w/e" in "period" column indicates a weekly report

* Q1: First Quarter | Adv: Advance Release | Pre: Preliminary Release | Fin: Final Release

* (n)SA: (non) Seasonally Adjusted

* PMI: "Purchasing Managers Index"