By Danny Jasper, Senior Vice President, Capital Markets

Mortgages and treasuries were highly volatile Friday, as the poor non-farm payroll (NFP) report — the U.S. economy created only 142,000 jobs in September vs. an expected 200K+ print– shook markets, sending the 10-year treasury yield to as low as 1.9% and the DJIA to under 16,000 in early trading.  Then, as the day went on, the dust settled and a risk on trade ensued, potentially as a result of Fedspeak by Federal Reserve Vice Chair Stanley Fischer, who indicated that there are no “acute risks” that threaten financial stability, even after the NFP report.

Equities subsequently rallied and the safe haven bid into treasuries died and when all was said and done, the Dow was up 200 points to 16,472, and the 10-year treasury yield closed a 1.99%, only a few basis points below where it opened.  If Fischer’s commentary Friday is indicative of the overall Fed sentiment, it would appear that the Fed still has a rate increase on the table for this year.  Of course, the stock rally could also just be the result of investors expecting the Fed to be accommodating for a longer period of time and the move into stocks pushed treasury yields higher.

Monday Morning Economic Data Mixed

The risk on trade has continued into this morning, as U.S. equities are up another 165 points, and the 10-year yield is right back to where it started before the disastrous NFP report.  Economic data this morning was mixed, as composite and services sector PMI reports for September missed along with the ISM non-manufacturing composite index. However, the misses were mild and consistent with the stronger range seen this year, so investors were not overly concerned.

The composite PMI report printed at 55 after a 55.3 in August and services PMI came in at 55.1 vs. 55.6 in the prior month.  The ISM report printed at 56.9 in September, below the 59.0 from August and the 57.5 expected, but there were gained on the employment portion of that report, which has led to positive overall sentiment from that release even though the headline number missed.  As a whole, today’s data was a non-event for trading patterns.

The Economic Week Ahead

For the rest of the week, the economic calendar is pretty quiet, but important reports will be released that need to be watched.  Tuesday, we have the trade balance report, which is expected to show that the trade deficit expanded by $6 billion to -$47.75B.  On Thursday, we get the release of the Fed minutes from the September FOMC meeting, which should prove to be quite valuable as investors speculate why the FOMC chose to hold rates at zero when data at the time seemed to have justified a move.

The Fed minutes may provide clarity that the FOMC was ready to make a move but wanted to hold off a bit longer to allow markets to steady themselves, or perhaps it will show a larger concern that would be suggestive of a longer holding pattern.  The minutes will be released at 2p.m. EST Thursday, and is something to be watched closely.

We close the week with import prices and wholesale trade data on Friday.  The Fed also has a full round of auctions this week, with $24 billion in 3-yearnotes on the block Tuesday, along with $21 billion in 10-year notes Wednesday and $13 billion in 30-year notes Thursday.

This Week’s Economic Calendar (courtesy of the FNMA trading desk):

Date Time Event Period Survey Actual Prior
10/05/2015 09:45 Markit US Composite PMI Sep F 55.0 55.3
10/05/2015 09:45 Markit US Services PMI Sep F 55.6 55.1 55.6
10/05/2015 10:00 ISM Non-Manf. Composite Sep 57.5 56.9 59
10/05/2015 10:00 Labor Market Conditions Index Change Sep 1.4 0.0 2.1
10/06/2015 08:30 Trade Balance Aug -$47.60b -$41.86b
10/06/2015 10:00 IBD/TIPP Economic Optimism Oct 44.5 42
10/07/2015 07:00 MBA Mortgage Applications 2-Oct -6.70%
10/07/2015 15:00 Consumer Credit Aug $19.500b $19.097b
10/08/2015 08:30 Initial Jobless Claims 3-Oct 274k 277k
10/08/2015 08:30 Continuing Claims 26-Sep 2200k 2191k
10/08/2015 08:45 Bloomberg Oct. United States Economic Survey
10/08/2015 09:45 Bloomberg Consumer Comfort 4-Oct 43
10/8/2015 14:00 U.S. Fed Releases Minutes from Sept. 16-17
10/09/2015 08:30 Import Price Index MoM Sep -0.50% -1.80%
10/09/2015 08:30 Import Price Index YoY Sep -11.10% -11.40%
10/09/2015 10:00 Wholesale Inventories MoM Aug 0.00% -0.10%
10/09/2015 10:00 Wholesale Trade Sales MoM Aug -0.40% -0.30%