Stocks have gotten off on the wrong foot, starting in China as their index dropped nearly 7% and closed the month with its first loss in four months. China is now down 23% from the August 4th peak. Sour stocks carried through to Europe and across the pond as stateside traders pressed the market on the open. The Dow is currently off 80 points. Bonds and mortgage backs have been the benefactor but ever so slightly. Currently, the 10 year note is up 5/32’s (yield 3.43%) and mortgage backs plus 2/32’s.
Month end fixed income extensions will support the market as well, even though fixed income funds need to extend duration by only .14 years. Chicago Purchasing Managers report hit the tape a couple of hours ago, up 6.6 point to 50. The better than expected rise puts the index at exactly break even, one in which the economy is neither contracting or expanding (Chicago area). Mild improvement within the employment component, due to inventory rebuilding, did the trick.
The week ahead will provide plenty of data, starting with Construction Spending and Pending Home Sales tomorrow and finishing the week with a holiday shorten trading session featuring the Mother of all data points, the Employment Report for August.
Today’s 10 year note chart pattern is directionless, backing and filling within a narrow range. With low volume and the Employment Report due out on Friday, the market seems to be in “value” with a supportive bias. Another positive note will be if we close the day at 3.53% or lower, the monthly bearish trend cycle will have been broken, adding another layer of support for fixed income and Austin mortgage pricing.