Today's ISM services data (technically "non-manufacturing") was one of the week's two biggest reports apart from tomorrow's jobs data.  Like it's manufacturing-specific sibling, it came out much weaker than expected, and markets did what you'd expect.  Bonds quickly improved to the week's best levels.  MBS struggled to keep pace with Treasuries.  And stocks sold-off initially but ultimately reversed course as investors assumed the data implied better odds for more Fed rate cuts.

That's about as simple as today can be explained, and there's no need to make it any more complicated.  The bigger questions surround tomorrow's jobs report.  With labor markets as strong as they have been, does a strong NFP number do much damage to this week's rally?  With this week's other econ data coming in so bad, is a weak NFP number already assumed to some extent?  As always the truth and the reality usually end up falling somewhere between the logical answers to the questions above.

But for the sake of speculation, my view is that an 'as-expected' NFP reading (or better) would be a bit of a relief to traders at this point.  With the consensus at 145k, anything between 100-200k could go either way in terms of the eventual bond market response, and it could go the other way depending on the internals (unemployment rate, wages, etc).  A sub 100k number would likely be more meaningful than a number over 200k (unless it's WAY over 200k).  

MBS Pricing Snapshot
Pricing shown below is delayed, please note the timestamp at the bottom. Real time pricing is available via MBS Live.
FNMA 3.0
101-26 : +0-04
10 YR
1.5340 : -0.0630
Pricing as of 10/3/19 5:23PMEST

Today's Reprice Alerts and Updates
A recap of Alerts and Updates provided to MBS Live subscribers.
11:14AM  :  ALERT ISSUED: Post-ISM Gains Almost Gone; Reprice Considerations
10:09AM  :  ISM Services Much Weaker Than Expected; Bonds Surge

MBS Live Chat Highlights
A recap of featured comments from the Live Discussion on the MBS Live Dashboard.
Mike Christensen  :  "Just a reminder with the changes to FNMA’s PMI policy there is a 4 month minimum for PMI to be removed. We had a call with FNMA yesterday and they told us there will be no exceptions to this."
Matthew Graham  :  "Ha... no way to know how traders are gonna trade it. I could make something up, like every other pundit out there, but it would then become just as meaningless. I think it's safe to say that a big miss would help bonds more than a big beat would hurt, and that SOME (unknown amount) of such a miss is already priced in. Therefore, we may be about back to neutral in terms of the typical econ data reaction function."
Jeff Anderson  :  "And no way to say that a bad report is priced in already. Traders will trade tomorrow accordingly, correct?"
Matthew Graham  :  "only bummer is MBS lag, but that's to be expected"
Matthew Graham  :  "bad data this week and a huge rally so far. Everything seems to be in order there."
Matthew Graham  :  "not really, SP."
Spencer Packer  :  "MG do you think traders are just waiting until after the report tomorrow to fully trade the news we've had this week?"
Matthew Graham  :  "Jobs report would need to be pretty stellar to undo the implications of the rest of the week's data."
Rob Downs  :  "Seems the market may be expecting it and if it doesn't come through we could see some selling."
Rob Downs  :  "So... odds that we need to see a big miss on jobs tomorrow in order to even remain flat, let alone get further gains?"

Economic Calendar
Time Event Period Actual Forecast Prior
Thursday, Oct 03
8:30 Jobless Claims (k) w/e 219 215 213
10:00 ISM N-Mfg Bus Act * Sep 55.2 59.0 61.5
10:00 ISM N-Mfg PMI * Sep 52.6 55.0 56.4
10:00 Factory orders mm (%) Aug -0.1 -0.2 1.4