THE BASIS POINT

Rates Up On Manufacturing Data, Preview of Market Week

Stocks and rates are up as investors look forward to economic improvement in 2011. Rates were a lot higher to begin the trading day, but bonds have since recovered a bit—if the recovery holds, rates will stop rising for the day. Late last week the Chicago ISM (Institute of Supply Managers) stats soared in December with its 4th consecutive gain and its highest level since the late 1980s. November Pending Home Sales, which measure the number of purchase contracts signed, were up 3.5% since October but down 5% since November 2009. And Jobless Claims also dropped significantly, possibly indicating unexpected strength in the employment sector.

The table below shows why today’s December ISM Index was generally optimistic on U.S. manufacturing activity and confirms a trend of increasing prices. Rates rise on this kind of data because price inflation causes bonds to sell off. Also, here’s a good WSJ table of global manufacturing activity by country. December Factory Orders and minutes from the December 14 Fed meeting are due tomorrow, mortgage application activity and ADP private payroll numbers are due Wednesday, Initial Jobless Claims are due Thursday, and the official BLS December jobs report showing unemployment rate and jobs gained/lost is due Friday. We’ll cover daily reports and also release our 2011 rate outlook this week.