The bond and mortgage markets opened a little better this morning ahead of key data points at 10:00 when the June ISM manufacturing report is released and the U. of Michigan consumer sentiment index is revealed. Stock indexes in early trading about unchanged. Manufacturing growth is slowing from China to Europe; China’s factory index fell to the lowest level since February 2009, while in the 17-nation euro area, a gauge slipped to an 18-month low. German manufacturing expanded at the weakest pace in 17 months, while Italy, Ireland, Spain and Greece contracted. In the U.K. and India, output growth also slowed.
As noted in the past two days, expect increased market volatility in equities, bonds, energy and precious metals in the next week or two. The rapid increase in interest rates since Tuesday appears to have caught investors off guard, markets will take some time to assess the potential impact on economies, inflation and the potential implications of an interest rate increase in Europe next week. The data this morning is adding to the swift turn in outlooks for the economy; after a series of very weak data points on May data now the data suggests the economy is showing slight signs of improvement. The stock market jumped higher on the 10:00 data, the 10 yr note yield hit 3.20% +4 bp on the initial reaction to the ISM report.
The mortgage bond market is now down to the worst levels of the day. Rates should move higher.