By Danny Jasper, Senior Vice President, Capital Markets

Mortgages are rallying and stocks are lower worldwide this morning after mixed U.S. economic data combined with disappointing Chinese industrial profits data has investors seeking safe haven.  This comes as a surprise after Federal Reserve Chairwoman Janet Yellen’s speech on Thursday evening regarding the Fed’s intention to raise rates before the end of the year sent 10-year treasury yields back up to 2.2%.

Chinese industrial profits dropped 8.8% year-over-year, the lowest reading since this has been tracked, setting off a global equity selloff.  Japanese stocks were down 1.5% overnight, and Eurozone stocks are down just under 2%.  U.S. stocks are also feeling the pain of the risk-off trade, and the DJIA has declined almost 200 points to start the morning.  If today’s sentiment holds true through the end of the month, U.S. equities will finish the quarter with the largest single quarter fall in stock prices since the financial crisis in 2010.  The Dow has declined almost 10% since the end of June.

Busy Week for Economic Data

Today is the start of a busy week in economic data, highlighted by Friday’s Non-Farm Payrolls (NFP) report for September.  We had mixed data releases so far today, with personal income and spending data for August showing beats above estimates, but the August report on pending home sales missed the mark.

Personal income rose 0.3% in August, slightly below the +0.4% estimate, but July was revised higher by almost 0.2%, netting out to a small increase.  Spending data came in even better, as personal spending rose 0.4% vs. +0.3% estimate, with July also revised higher by an additional 0.1%.  Both reports are consistent with a stable and improving consumer.  Core personal consumption was also higher by 0.1% month-over-month and 1.3% year-over-year, right in line with estimates.

On the housing front, pending home sales were surprisingly lower, down 1.4% vs. an expected +0.4% increase, and year over year pending home sales dropped to 6.7% from 7.2%.  At this point, however, investors don’t appear to be too concerned on this print as pending sales have been solid year to date.

Fed Officials Appear to Support Rate Hike for Later This Year

Moving back to the Fed and Yellen’s commentary last Thursday, Fed officials clearly appear to be lining up in support of a rate hike later this year.  This morning, New York Federal Reserve Bank President William Dudley, well known as being an influential FOMC member with dovish sentiment, stated that he too expects a Fed rate hike before the end of the year.  There will be additional speeches by Fed officials Evans and Williams later today, and it will be interesting to see if they provide the same sentiment in what is clearly playing out as a FOMC “heads up” to markets.

Economic data for the rest of the week continues with data on home prices Tuesday from the Case Shiller index, as well as the ADP employment change data and the Chicago PMI print Wednesday.  On Thursday, we start the fourth quarter with data on ISM manufacturing and construction spending (in addition to the weekly jobless claims data), and we close with NFP on Friday.

The current consensus estimate for Friday is that U.S. employers added 202,000 new jobs last month after they added 173,000 in August.  The unemployment rate is expected to hold at 5.1%, and average hourly earnings are expected to jump to +2.4% year-over-year.  Considering that the August NFP print last month was noted as likely to have been light due to delays in reporting, many will expect that there will also be strong net revisions to the July and August readings.

Economic Calendar below (courtesy of the FNMA trading desk):

Date Time Event   Survey Actual Prior Revised
09/28/2015 08:30 Personal Income Aug 0.40% 0.40%
09/28/2015 08:30 Personal Spending Aug 0.30% 0.30%
09/28/2015 08:30 Real Personal Spending Aug 0.40% 0.20%
09/28/2015 08:30 PCE Deflator MoM Aug 0.00% 0.10%
09/28/2015 08:30 PCE Deflator YoY Aug 0.30% 0.30%
09/28/2015 08:30 PCE Core MoM Aug 0.10% 0.10%
09/28/2015 08:30 PCE Core YoY Aug 1.30% 1.20%
09/28/2015 10:00 Pending Home Sales MoM Aug 0.40% 0.50%
09/28/2015 10:00 Pending Home Sales NSA YoY Aug 8.00% 7.20%
09/28/2015 10:30 Dallas Fed Manf. Activity Sep -10 -15.8
09/29/2015 09:00 S&P/CS 20 City MoM SA Jul 0.10% -0.12%
09/29/2015 09:00 S&P/CS Composite-20 YoY Jul 5.15% 4.97%
09/29/2015 09:00 S&P/CaseShiller 20-City Index NSA Jul 182.22 180.88
09/29/2015 09:00 S&P/Case-Shiller US HPI MoM Jul 0.09%
09/29/2015 09:00 S&P/Case-Shiller US HPI YoY Jul 4.49%
09/29/2015 09:00 S&P/Case-Shiller US HPI NSA Jul 173.84
09/29/2015 10:00 Consumer Confidence Index Sep 96 101.5
09/30/2015 07:00 MBA Mortgage Applications 25-Sep 13.90%
09/30/2015 08:15 ADP Employment Change Sep 190k 190k
09/30/2015 09:00 ISM Milwaukee Sep 48.5 47.67
09/30/2015 09:45 Chicago Purchasing Manager Sep 53 54.4
10/01/2015 07:30 Challenger Job Cuts YoY Sep 2.90%
10/01/2015 08:30 Initial Jobless Claims 25-Sep 272k 267k
10/01/2015 08:30 Continuing Claims 18-Sep 2230k 2242k
10/01/2015 09:45 Markit US Manufacturing PMI Sep F 53 53
10/01/2015 09:45 Bloomberg Consumer Comfort 27-Sep 41.9
10/01/2015 10:00 Construction Spending MoM Aug 0.60% 0.70%
10/01/2015 10:00 ISM Manufacturing Sep 50.6 51.1
10/01/2015 10:00 ISM Prices Paid Sep 40 39
10/01/2015 Wards Domestic Vehicle Sales Sep 13.80m 13.80m
10/01/2015 Wards Total Vehicle Sales Sep 17.50m 17.72m
10/02/2015 08:30 Change in Nonfarm Payrolls Sep 202k 173k
10/02/2015 08:30 Two-Month Payroll Net Revision Sep
10/02/2015 08:30 Change in Private Payrolls Sep 197k 140k
10/02/2015 08:30 Change in Manufact. Payrolls Sep 0k -17k
10/02/2015 08:30 Unemployment Rate Sep 5.10% 5.10%
10/02/2015 08:30 Average Hourly Earnings MoM Sep 0.20% 0.30%
10/02/2015 08:30 Average Hourly Earnings YoY Sep 2.40% 2.20%
10/02/2015 08:30 Average Weekly Hours All Employees Sep 34.6 34.6
10/02/2015 08:30 Underemployment Rate Sep 10.30%
10/02/2015 08:30 Change in Household Employment Sep 196
10/02/2015 08:30 Labor Force Participation Rate Sep 62.60%
10/02/2015 09:45 ISM New York Sep 51.1
10/02/2015 10:00 Factory Orders Aug -1.30% 0.40%
10/02/2015 10:00 Factory Orders Ex Trans Aug -0.60%