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Treasuries are firmer and U.S. equities are mixed following the the Group of 20 finance ministers weekend meeting in Paris. European bourses has been rallying hard but then paced slower once German chancellor Angela Merkel let it be known that much work still had to be done to resolve the European debt crisis.

"Dreams ... that with this package everything will be solved and everything will be over on Monday won't be able to be fulfilled," said Merkel's spokesman, according to Bloomberg.

Treasuries are steady on the short-end but firmer through the rest of the curve. The benchmark 10-year rate is two basis points down at 2.23% and the 30-year yield is marginally lower at 3.23%, while the two-year remains at 0.27%.

Equity futures are mixed following a 6% rally last week - the best week in more than two years. S&P 500 futures are up 0.02% at 1,219.50, but Dow futures are 26 points lower at 11,540.

Global equities have a much clearer direction, even after the rally fizzled out. In Asia, shares in Hong Kong and Japan rose 2.01% and 1.50%, while Chinese stocks rose 0.37%. In Europe, the FTSE 100 is up 0.45% and the CAC-40 is 0.25% higher.

Among commodities, light crude oil is 0.15% lower at $86.67 per barrel, while gold prices are off 0.4% at $1,682.60 per ounce.

As the Q3 earnings period continues, investors await results from Citigroup and Wells Fargo today, with Bank of America reporting tomorrow.

Key Events This Week:

Monday:

8:30 - The Empire State Manufacturing Survey has deteriorated for the past two months. September's headline, at -8.8, had some commentators speaking of stagflation as the prices paid component jumped to +32.6. This month, the headline is expected at -4.

"Financial market volatility remained high in early October so we are looking for continued weakness in the regional manufacturing surveys, though better levels when compared to August and September," said Nomura Global Economics.

9:15 - Industrial Production is anticipated to tick up 0.2% in September, following a 0.2% gain in August and a 0.9% jump in July. The September gain was led by a 0.5% climb in manufacturing, offset by a 3% dip in utility output. More weather-related weakness in utilities should tame the headline this month, but 13,000 manufacturing jobs were lost, so the make-up of the expected 0.2% gain is quite different than in August.

"The drags will be lower electricity output after two hotter-than-normal summer months, and lost oil and gas production from hurricane shutdowns," said IHS Global Insight. "On the manufacturing side, vehicle production should be flat after a big jump in August, and core manufacturing may inch higher in a mediocre climate. Underneath the crosscurrents, the bulk of manufacturing is just drifting, moving sideways to slightly higher - but not tipping into recession."

Janney Capital Markets added: "The strength of the manufacturing industry through the now-stalled economic recovery was quite impressive, though there's some evidence that, as broader economic conditions deteriorated, that factory output likewise slowed."

7:30pm - Jeffrey Lacker, president of the Richmond Fed, speaks at the Salisbury-Wicomico Economic Development Annual Meeting on the economic outlook

8:00pm - Charles Evans, president of the Chicago Fed, speaks on monetary policy and the economic outlook to the Michigan Economic Summit.

• Treasury Auctions:
• 11:30 - 3-Month Bills
• 11:30 - 6-Month Bills

Tuesday:

8:30 - Economists expect the Producer Price Index to move up 0.2% in September, following a flat reading in August and a 0.2% gain in July. Core prices, which exclude oil and food components, are expected to grow 0.1%, the same as in August and well below the 0.4% jump in July.

"Gasoline prices should be sharply higher - recent declines came too late to pull down the September price index," said IHS Global Insight. "Food prices are expected to ease back after three sharp monthly increases in succession. We expect core finished goods prices to be flat, held down in part by vehicles prices as manufacturers become more aggressive at discounting."

Citigroup expects a 0.3% jump in headline prices but said the general trend is towards softer wholesale prices in coming months.

"Crude petroleum prices have fallen sharply, first on WTI and now even Brent seems to be headed lower," Citi said. "In addition, many non-energy commodity prices have fallen sharply recently."

10:00 - Builder sentiment remains exceedingly low, according to the Housing Market Index, which fell to 14 in September. Economists expect the index to inch forward to 15 this month, but until there is a sustained rise these monthly fluctuations can be ignored. An optimistic reading is anything above 50. We've got a long way to go.

"Housing activity remains depressed as builders cite credit conditions and price competition from distressed sales as an impediment to new home buying," said Nomura Global Economics.

1:15 - Fed Chairman Ben Bernanke speaks to the Boston Fed Bank conference on the long term effects of the great recession.

• Treasury Auctions:
• 11:30 - 4-Week Bills
• 11:30 - 52-Week Bills

Wednesday:

8:30 - The Consumer Price Index increased to a year-over-year rate of 2% in September. Monthly prices have recently inflated 0.4% and 0.5% on rising food, gas, and rent prices. This month CPI should grow 0.3%; core prices, which strip out food and gas prices, should expand by 0.2% for the third month. That would leave the year-over-year headline rate at 2.1%, enough to get hawks at the Fed concerned about quantitative easing.

"Firms have managed to hike prices in many cases despite anemic consumer demand," said Janney Capital Markets. "The story here is, in our view, one of tight capacity in many industries. As firms cut back on production ability when times were tight in 2008- 2009, they generated a greater ability to control pricing when conditions stabilized, as was the case post-2009. That pricing power has been partially responsible for deflation not taking hold in the US economy over the ensuing eighteen months; the Fed's quantitative easing programs deserve credit for the balance."

Citigroup said CPI should by led higher by another jump in energy costs, but core price should be tame.

"Apparel prices have soared in the four months to August at the fasted pace in the post-WWII era," they added. "The 5% cumulative rise (not annualized) followed nearly a decade of stagnant prices. Given the lack of demand and tremendous slack in the economy, we have a hard time trusting that this is a new trend. Seasonal factors look for more than a 4% rise in prices in September. We think the price increase will fall short of seasonals, especially starting from such elevated levels, yielding a decline in apparel prices this month."

8:30 - Recent permit figures and post-Hurricane Irene rebuilding needs should contribute to higher Housing Starts in September. The annualized pace of new construction should improve to 595k, up from 571k in August but still below the 601k level registered in July.

"Housing starts likely remained in the tight range in place since the end of the recession," said Citigroup. "Single-family housing construction has been especially weak during this period, while multifamily housing shows some signs of a rebound ... Multi-unit starts are probably being spurred by the falling rental vacancy rate and the corresponding rise in rent prices."

IHS Global Insight also anticipated improvement, but say that permits will probably slip because the economy is struggling.

"The key number to watch in this report will be single-family permits, which have gradually improved from a low point of 382,000 in February to 418,000 in August," they said. "A strong increase - which we are not expecting - would point to a long-awaited recovery in housing construction."

8:30 - Eric Rosengren, president of the Boston Fed, speaks at the Boston Fed's conference on the long term effects of the great recession.

2:00 - Hopes are modest for the Federal Reserve's Beige Book, an anecdotal summary of economic conditions compiled by the 12 regional Reserve banks. In the last report on September 7, seven banks described local conditions as "very subdued," "slow" or "sluggish," while just five reported "modest" or "slight" growth. Labor markets were stable, stock market volatility was blamed for causing uncertainty, and retail sales were mixed.

"The tone of the report," said Nomura Global Economics, "should be less pessimistic compared to the FOMC statement and minutes from the September meeting because it will reflect the more positive data on the economy that has come in since that time. Still, we expect anecdotes of firms exhibiting restraint - in both hiring and capital investment - to also crop up in a labor market whose outlook has dimmed."

Thursday:

8:30 - The four-week average of Initial Jobless Claims fell 7,000 to 408,000 in the last report. This week, economists predict 400k claims.

The downward trend appears to have resumed following technical adjustment problems that were "exacerbated by the backlog of claims filings following the arrival of Hurricane Irene in early September," said Nomura Global Economics.

Citigroup notes the four-week moving average could drop to a six-month low.

"The more than 20,000 person decline in the average from the same period in September suggests some thawing in the labor market," they said. "Claims were particularly elevated in September reflecting a number of special factors, but also general softening in the economy. The continued improvement in filings supports our expectation of faster 2H growth."

10:00 - Despite falling home prices and stimulative mortgage rates, Existing Home Sales are anticipated to fall to an annualized pace of 4.90 million units in September, down from 5.03 million a month before.

"Although mortgage rates have fallen to a historic low below 4% on 30-year fixed loans, and the housing affordability index remains near record highs, these are not the driving factors for housing at this time," said Citigroup. "Mortgage credit availability remains tight and potential buyers are now expected to amass larger down payments, which takes time."

The view is backed by recent data, as noted by IHS Global Insight. "Mortgage applications to buy homes dropped in both August and September, pointing to a drop in existing home sales in September," they said. "The Pending Home Sales Index, which slipped 1.2% in August, also points to a September sales decline."

10:00 - The Philadelphia Fed Index is expected to improve overall but remain in economic contraction for the third straight month. Economists peg the index at -9.9, compared with a weak -17.5 in September and a recessionary -30.7 in August.

"The Philly Fed index has been all over the map this year and not very reflective of economic activity," said Citigroup. "At the start of spring, the index jumped to the highest reading in a quarter century, only to plunge to one of its lowest readings by mid-summer. The economy and other measures of activity exhibit none of these extremes. So, while we expect the Philly measure to settle down to levels consistent with ongoing modest growth in coming months, we take this business gauge with a grain of salt."

10:00 - The Leading Economic Indicators index, a composite gauge that attempts to measure turning points in the economy, should grow by 0.3% in September following prior gains of 0.4% and 0.6%.

"Once again the majority of the gain will come from the yield curve and real money supply components, but higher consumer expectations and better vendor deliveries will also contribute to growth," said Nomura Global Economics.

10:15 - James Bullard, president of the St. Louis Fed, gives opening remarks at the Fall Research Policy Conference in St. Louis.

8:00pm - Narayana Kocherlakota, president of the Minneapolis Fed, speaks to Minnesota Council on Economic Education in Minneapolis.

Friday:

1:00 - Narayana Kocherlakota, president of the Minneapolis Fed, speaks to the Harvard Club of Minnesota in Minneapolis.

Treasury yields are falling for the first time in seven sessions as investors hesitate to push equities higher until new data hits the wires.

The benchmark 10-year Treasury yield is two basis points lower at 2.19%, the two-year yield is one basis point lower at 0.28%, and the 30-year yield is two basis points lower at 3.18%.

Over the past five trading sessions, the 10-year yield has climbed from 1.84%.

S&P 500 futures are 3.6 points lower (-0.30%) at 1,19460 and Dow futures are 22 points lower (-0.19%) at 11,394.

So far this month, the S&P has rebounded by 6.7% and the Dow has climbed 5.55%.

"It looks like there is some pullback in overseas markets this morning," said BMO Capital Markets. "The opposition leader in Slovakia said that Friday is the latest date to ratify the [European Financial Stability Fund] deal. The concern now revolves around how much of a haircut the private sector will have to take on their Greek bond holdings. Stories floated around yesterday that banks may be required to take 30%-to-50% of a hit - versus the 21% that was agreed up back in July.

In Asia, China's Shanghai index rose 0.79%, shares in Hong Kong jumped 2.34%, and Japan's Nikkei 225 finished 0.97% higher. But Europe's ongoing session has the FTSE 100 falling 0.95% and France's CAC-40 has shed 1.06%.

Light crude oil fell 1.55% overnight to $84.33 per barrel, while gold prices moved 0.56% lower to $1,673.80 per ounce.

Key Events Today:

8:30 - The Trade Balance is expected to be in deficit of $46 billion in August, versus a $44.8 billion gap in July and a $51.6 billion hole in June. The July figure was much narrower than anticipated (and the lowest since April) thanks to a 3.6% pickup in exports. The median estimate this month assumes exports will slowing down, but any rise in imports should be limited as WTI oil prices fell $10 per barrel to $86.

"Exports should retreat modestly after a very strong rebound in July," said IHS Global Insight, anticipating a $44 billion deficit. "On the import front, we expect little movement from petroleum imports, while non-petroleum imports should decline after a strong uptick in July. Trade should provide a boost of around 1.0 percentage point to growth in the third quarter (after adding 0.2 percentage-points to the second quarter), as export growth improves and imports fall slightly."

Economists at Citigroup also believe net exports added almost a point to GDP in the third quarter.

"Export demand seems to have picked up somewhat in the quarter. But the real shift was in imports, which stalled out completely in real terms. As such, it is hard to view the mathematical contribution from trade as a positive for the economy. The pullback in import growth was matched by a similar drop in domestic demand for imported products and services."

8:30 - Initial Jobless Claims rose less than anticipated to 401k in the week ending Oct. 1, with the four-week average declining 4k to 414k. The first full week of October is anticipated to see 405k new filings, which Citi says would allow the four-week average to retreat to a seven-week low.

"However, there is a risk of a larger weekly increase as unadjusted filings typically spike at the beginning of each quarter," Citi added. "Claims were particularly elevated in September reflecting a number of special factors, but also general softening in the economy. Further improvement in filings would support our expectation of faster second half growth."

2:00 - September is usually a time of surplus for the U.S. Treasury Budget, but not this year. Following an August deficit of $134.2 billion, the September deficit is anticipated at $64.5 billion, or roughly double the September 2010 level.

According to Bloomberg, the average surplus for September over the past decade has been $29.8 billion; for the last five years: $27 billion.

Nomura Global Economics estimates that Treasury receipts fell 4% year-over-year in September, while government outlays grew 14.5%.

"As such, the U.S. budget deficit likely widened to $85 billion compared to $34.6 billion in September 2010," Nomura said. "The U.S. budget deficit is tracking -$1,319 billion in fiscal 2011 compared to -$1,294 in fiscal 2010."

2:30 - Narayana Kockerlakota, president of the Minneapolis Fed, speech to Sidney (Montana) Area Business Leaders.

• Treasury Auctions:
• 1:00 - 30-Year Bonds

The bond market was closed Monday so Treasury yields are only now backing up in reaction to the broad equity rally which pushed the Dow nearly 3% higher to reclaim its 50-day moving average. The S&P 500 also jumped 3.41%.

The news sending equities higher: German Chancellor Angela Merkel and French President Nicholas Sarkozy announced they were developing a "comprehensive strategy" to resolve the eurozone debt crisis by the start of November.

The benchmark 10-year Treasury yield is sixbasis points higher than Friday's close at 2.135%, the two-year yield is a single basis point up at 0.304%, and the 30-year yield is four basis points higher at 3.06%.

Enthusiasm has dampened from Monday as the market awaits a parliamentary vote on the eurozone’s rescue fund from Slovakia. S&P 500 futures are 5.9 points lower at 1,185 and Dow futures are 38 points lower at 11,330.

In Asia, Japan's Nikkei 225 finished 1.95% higher and shares in Hong Kong jumped 2.43% But Europe's ongoing session is seeing losses. The FTSE 100 is off 0.61% and Germany's DAX is trading 0.30% lower.

Light crude oil is 0.42% lower at $85.03 per barrel, and gold prices are 0.38% lower at $1,664.70 per ounce.

While no major data is expected for release today, the Q3 earnings season kicks off with aluminum producer Alcoa. The report, to be followed by Pepsi on Wednesday and Google and JPMorgan on Thursday, could set the tone for earnings expectations. Expectations are weak in light of the weakening global economy.

Key Events This Week:

Tuesday:

No major data.

• Treasury Auctions:
• 11:30 - 3-Moth Bills
• 11:30 - 6-Month Bills
• 1:00 - 3-Year Notes

Wednesday:

1:20 - Richard Fisher, president of the Dallas Fed, speaks on Fed operations and the economy to a Dallas Fed community forum.

1:30 - Charles Plosser, president of the Philadelphia Fed, speaks on the economic outlook at Wharton in Philadelphia.

2:00 - The FOMC Minutes should provide Fed-watchers more detail on the underpinnings of Operation Twist - the effort to flatten the yield curve by swapping $400 billion of short-term notes for longer-duration securities. The Sept. 21 decision to

purchase bonds as lengthy at 30 years surprised the market and pancaked the spread between 10-year 30-year yields, all without adding to the Fed's balance sheet.

"The most notable move was the Fed's announcement that it would 'support conditions in mortgage markets" by reinvesting 'principle payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities,' says Nomura Global Economics. "In the minutes of the September meeting, we hope to get more details on the 'significant downside' risk to the outlook, but more importantly, what tools were discussed as indicated by the Committee's statement that, 'The Committee discussed the range of policy tools available to promote a stronger economic recovery.'

2:15 - Sandra Pianalto, president of the Cleveland Fed, speaks on leadership in challenging times at the University of Akron, Ohio

• Treasury Auctions:
• 11:30 - 4-Week Bills
• 1:00 - 10-Year Notes

Thursday:

8:30 - The Trade Balance is expected to be in deficit of $46 billion in August, versus a $44.8 billion gap in July and a $51.6 billion hole in June. The July figure was much narrower than anticipated (and the lowest since April) thanks to a 3.6% pickup in exports. The median estimate this month assumes exports will slowing down, but any rise in imports should be limited as WTI oil prices fell $10 per barrel to $86.

"Exports should retreat modestly after a very strong rebound in July," said IHS Global Insight, anticipating a $44 billion deficit. "On the import front, we expect little movement from petroleum imports, while non-petroleum imports should decline after a strong uptick in July. Trade should provide a boost of around 1.0 percentage point to growth in the third quarter (after adding 0.2 percentage-points to the second quarter), as export growth improves and imports fall slightly."

Economists at Citigroup also believe net exports added almost a point to GDP in the third quarter.

"Export demand seems to have picked up somewhat in the quarter. But the real shift was in imports, which stalled out completely in real terms. As such, it is hard to view the mathematical contribution from trade as a positive for the economy. The pullback in import growth was matched by a similar drop in domestic demand for imported products and services."

8:30 - Initial Jobless Claims rose less than anticipated to 401k in the week ending Oct. 1, with the four-week average declining 4k to 414k. The first full week of October is anticipated to see 405k new filings, which Citi says would allow the four-week average to retreat to a seven-week low.

"However, there is a risk of a larger weekly increase as unadjusted filings typically spike at the beginning of each quarter," Citi added. "Claims were particularly elevated in September reflecting a number of special factors, but also general softening in the economy. Further improvement in filings would support our expectation of faster second half growth."

2:00 - September is usually a time of surplus for the U.S. Treasury Budget, but not this year. Following an August deficit of $134.2 billion, the September deficit is anticipated at $64.5 billion, or roughly double the September 2010 level.

According to Bloomberg, the average surplus for September over the past decade has been $29.8 billion; for the last five years: $27 billion.

Nomura Global Economics estimates that Treasury receipts fell 4% year-over-year in September, while government outlays grew 14.5%.

"As such, the U.S. budget deficit likely widened to $85 billion compared to $34.6 billion in September 2010," Nomura said. "The U.S. budget deficit is tracking -$1,319 billion in fiscal 2011 compared to -$1,294 in fiscal 2010."

2:30 - Narayana Kockerlakota, president of the Minneapolis Fed, speech to Sidney (Montana) Area Business Leaders.

• Treasury Auctions:
• 1:00 - 30-Year Bonds

Friday:

8:30 - Retail Sales, the key data point this week, could provide some support for markets if economists are correct in assuming a 0.6% uptick in September. The August report came in flat; spending growth was held back by declines at auto dealerships, as well as in clothing, department stores, and restaurants.

September should reverse the trend as auto dealers posted 13 million light vehicle sales, versus August's 12.1 million units, according to IHS Global Insight.

"Retail sales excluding autos are expected to rise 0.4%, due to growth in sales at building materials and garden supply stores and gasoline stations," IHS Global said. "Retail sales used to estimate personal spending - total retail sales less autos, less building materials, less gasoline - are expected to increase only 0.2%, not a dramatic rise, but still better than August, which was flat. Consumer confidence is still in recession territory, but spending is holding up better than sentiment."

Vehicle sales are the largest single category of retail sales, reminded Janney Capital Markets. The firm said the increase in car sales will be the brightest spot in September retail sales, while the other items are mixed.

"Early returns from retailers point towards a 1% increase in same store sales, which is a healthy performance for what's typically an off month between back-to-school and the holiday seasons," Janney said. "The same store sales performance is all the more impressive considering weather trends in the beginning of the month, which featured the after-math of Hurricane Irene hitting the population-heavy areas in the northeast as well as a downright obscene heat wave across the most populated areas of the south."

9:55 - Consumer Sentiment should remain at abysmal levels in October. The index last ticked up to 59.4 from 55.7, but remains roughly 25% lower than before the summer. The median estimate anticipates a score of 60 this month, a recessionary level.

"Consumer sentiment fell sharply during the summer months, and consumers face considerable headwinds such as poor job prospects, declining household net worth, higher poverty rates, and rising prices," said IHS Global Insight, predicting a slightly higher than consensus estimate. "However, consumer confidence has been slowly improving since August."

"Sentiment surveys seem to be taking their cue from the loss in equity wealth," added Citigroup. They noted that sentiment has largely decoupled from spending behavior, thankfully.

"At the same time consumers report little optimism, they bought more motor vehicles and merchandise at large retail outlets."

10:00 - Business Inventories climbed by a flatter than expected 0.4% in July as sales grew 0.7% and the inventory to sales ratio fell a basis point to 1.27. The falling ratio suggests businesses aren't piling up inventories and will continue to purchase supplies so long as the economy remains growing. The August figure is also expected at 0.4%.

"Inventory building has slowed from a torrid pace earlier in the year," said Nomura Global Economics. "Downside risk to expectations could come in the form of lower energy prices."

Bond markets were slightly weaker today and Mortgage Rates edged just slightly higher, shifting the balance toward 4.0% as the more prevalent Best-Execution rate, up from 3.875% yesterday.

markets seem poised to move in either direction leading up to and following Friday's Employment Situation Report, and those movements are likely to affect mortgage rates.

Today's Rates:

• BESTEXECUTION 30YR FIXED - 4.0% more prevalent, 3.875% still out there
• FHA/VA - still at 3.75% !!
• 15 YEAR FIXED- 3.375%-3.5%
• 5 YEAR ARMS - low to mid 3% range, variations from lender to lender.

Ongoing Guidance: Lean more heavily toward locking when Best-Ex is near 4.0 these days. Optimistic for future gains, but would hate to see 3.875 unexpectedly evaporate on some surprise headline out of Europe or turning point in economic data.

New Guidance: The fact that today left mortgage rates almost unchanged and yesterday's stock rally very much intact puts even more emphasis on Friday's Employment Situation Report. It's a bit of an anomaly because lately, economic data hasn't been much of a market mover, but there's a decent chance for the jobs data to buck that trend. If you're quoted rate just nudged up an eighth of a point today, you might float into tomorrow to see if you can get it back, but expect lenders to be cautious ahead of Friday's data. The bottom line is that floating is basically a crapshoot that relies on the jobs report being fairly lackluster in order for rates to recapture any of their previous glory. At around 4%, they're still pretty glorious...

With the worst quarter for stocks since 2008 now behind, global investors are hoping and praying for the return of stability and growth. But fears of a double-dip recession coupled with a packed economic calendar are not likely to contribute to that outcome. Beyond domestic economic data, the debt crisis in Europe continues to occupy a large part of the market's attention.

The passing of quarter-end paper-shuffling and the onset of Operation Twist (Here are the details: Schedule FAQ) as well as the Fed's new MBS buying efforts, should be calming and buoyant factors for bond markets this week, not to mention the charactertic narrowing trading ranges that often precede Non-Farm-Payrolls.

The benchmark 10-year Treasury is starting the week five basis points lower at 1.87%, while the 30-year yields is seven basis points down at 2.84% and the two-year yield is steady at 0.25%.

S&P 500 futures are down 3.1 points at 1,122.90, while Dow futures are 37 points lower at 10,804.

Fannie Mae 30yr Fixed MBS 3.5 Coupons are 11/32nds higher than Friday's last mark at 103-04.

MBS have had a rough go of it versus Treasuries of late, and although there spread between the two has seen a bit of expected volatility in several trading sessions following the announcement itself, the MBS component of Operation Twist is widely expected to be a long term net-benefit to MBS spreads vs Treasuries.

Key Events This Week:

Monday:

10:00 - The ISM Manufacturing Index continues to teeter on the brink of contraction. Economists expect the index to come in below 51 for the third consecutive month in September - less than a point away from indicating a slowdown in national manufacturing.

Regional indexes have been weak overall, but the Chicago Business Barometer surprised to the upside last week, providing some hope that pockets of growth remain.

"Manufacturing had been a driving force behind the recovery, especially toward the end of 2010 and early this year," said Citigroup. "But the pullback in domestic demand this year has dampened activity in factories. We think that the extreme weakness in some other business surveys, such as the Philly Fed index, has exaggerated the pullback in manufacturing. The Philly headline index incorporates respondents' subjective views of the economic environment. In contrast, the ISM index is an average of component indexes that are based on current activity."

As recently as April, the index showed a higher-than-60 level, indicating strong and broad growth. But the New Orders component, a forward-looking indicating, has come in just below the 50-threshold for the past two months.

10:00 - Expect a 0.2% drop in Construction Spending for August, economists say. The report last fell 1.3%, as public construction fell 2.1% - the 9th fall in 10 months - and private construction dropped 0.9%.

This month should see "modest increases" among non-residential and multi-family projects, partly offset by another slip in public construction, according to IHS Global Insight.

Citigroup, however, expects gains in private spending to give the headline a 0.2% uptick.

"Residential investment has been treading water in the past year, reflecting stagnant housing starts. But nonresidential construction has been on a rising tack," Citi said, noting the sector should provide a small gain to Q3 GDP. "The gains in nonresidential investment have been partially offset by ongoing losses in state and local government projects."

6:00 - Jeffrey Lacker, president of the Richmond Fed, speaks at the University of Wisconsin on "Economics After the Crisis." Q&A to follow.

• Treasury Auctions:
• 11:30 - 3-Month Bills
• 11:30 - 6-Month Bills

Tuesday:

10:00 - Fed chairman Ben Bernanke gives a talk before a bipartisan congressional panel on the U.S. economy.

10:00 - Factory Orders should show a minor slowdown in August of 0.1% following a transportation-led 2.4% jump the month before. The already-reported 0.1% fall in new orders for durable goods provides most of the ket data for this report, yet forecasts range from a 1% decline to a 1.1% jump, so there's room for a surprise.

"Orders held up surprisingly well in the advanced notification of durable goods orders in August, which sets the tone for factory orders," said Nomura Global Economics. "Price weakness from falling commodities over the month, however, should limit the upside for nondurable inventories and orders. We forecast an increase of 0.1% in August factory orders, with inventories increasing by 0.5%."

• Treasury Auctions:
• 11:30 - 4-Week Bills

Wednesday:

8:15 - Private employment growth has been weak in recent months, and September is anticipated to be worse. The ADP Employment Report is expected to show just 70k new jobs last month, versus 91k in August and 109k in July. Forecasts range from a 10k drop to a 117k surge. Problematic as this report can be, it should guide expectations for Friday's "official" report.

10:00 - Like its manufacturing cousin, the ISM Non-Manufacturing Index is expected to slow down from its August levels, but unlike its cousin this index has room to fall before entering contraction. Economists look for a score of 53, with forecasts sitting in a range from 51.3 to 55. The index measures the services, construction, and financial industries.

"The services side of economic output has found itself in the enviable position of being the stronger, after spending the bulk of the recession lagging the manufacturing sector," said Janney Capital Markets, noting how an unexpected increase in August pointed to a certain resiliency among services-sector corporations.

"On the positive side, client demand for business services seems to be trending stably, and the recent GDP data point towards a consumer base more willing to spend on services than goods," Janney added. "On the negative side, business confidence is easing, introducing a possibility of cut not, ask questions later actions from services sector firms. We see the services industry as likely to prove durable through the ongoing economic slow patch, though possible at the expense of jobs."

Thursday:

8:30 - Technical reasons rather than economic ones led the weekly Initial Jobless Claims figure to fall 37k to to just 391k in the week ending Sept 24. So it's not surprising that economists anticipate this week's number to climb back to something closer to the four-week average of 417k. The median estimate is 411k; forecasts range from 385k to 425k.

"Initial claims probably leapt back above 400,000, but held below recent highs," said Citigroup. "This follows a dramatic decline in the previous week that likely was a combination of a variety of factors including possible seasonal adjustment difficulty, fewer Irene-related filings and improved activity. Beneficiaries and the insured rate probably were unchanged, remaining near their respective six-month averages."

Friday:

8:30 - Economic uncertainty and stock market volatility creates a rough environment for companies to hire. Yet the expectation is the labor market grew modestly in September. Economists looks for 50k new jobs in the Employment Situation report - certainly not enough to keep up with population growth - but it's 50k more than in August. The Unemployment Rate should stay at 9.1%.

"Hiring was probably restrained by continuing extreme uncertainty over the outlook, while firings were probably more severe as initial unemployment insurance claims were higher than in August," said IHS Global Insight, predicting a 9.2% jobless rate. "We expect just 25,000 jobs added overall - meaning there would be a loss of 20,000 jobs but for the return to payrolls of 45,000 Verizon workers after a strike. We expect 70,000 private jobs added (just 25,000 ex-Verizon), and a loss of 45,000 government jobs, in line with recent trends."

Citigroup said September will be the fourth month of lackluster growth.

"The private employment gain probably was notably larger than in August ut most of the pickup reflects the swing from 46,000 striking and then returning Verizon workers," Citi added. "We think government employment will continue to be a drag on payrolls.

10:00 - Wholesale Inventories should pick up 0.6% in August, following a 0.8% gain in July and a 0.6% increase in June.

"Energy prices dropped in August, which should lend downward pressure to wholesale inventories," said Nomura Global Economics.

3:00 - Economists expect outstanding Consumer Credit to grow by $8 billion in August, following back-t0-back gains of more than $10 billion ($12 billion in July and $11.3 billion in June).

The July gain was driven solely by installment credit, which picked up $15.4 billion - the largest since November 2001 and the fifth largest in data going back to 1943, according to IHS Global Insight. Growing credit can be a good sign for the economy as it indicates a willingness among consumers to buy big-ticket items, but the latest data points to federal loans rather than produced goods.

"The fact that increased demand for student loans is behind the non-revolving bounce is not a good sign," IHS Global said. "It indicates that households are having more and more difficulties financing studies of their kids."

August data should also be driven in August motor vehicle purchases and student loans, according to Nomura. "For this reason, we expect non-revolving credit to account for nearly all of the increase."

Treasuries are little changed from Friday's levels but the stock market, after losing more than 6% last week, is preparing to rebound in early trading.

This week's focus will be on passage of the EFSF's expanded powers and Greece's 2nd bailout package, according to BMO Capital Markets, which added: "There are quite a few Eurozone governments meeting to talk about the debt crisis and the urgent need to resolve it."

Before it all begins, the 10-year and 30-year Treasury yields are a basis point up at 1.84% and 2.91%, respectively, while the two-year yield is flat at 0.22%.

S&P 500 futures are 16.7 points higher at 1,146.50, reflecting a 1.48% gain. Dow futures are 137 points up at 10,834, a 1.28% jump.

Light crude oil, after falling 9% last week, moved 0.25% lower overnight to $80.30 per barrel, and gold prices declined 0.40% to $1,633.30.

Key Events This Week:

Monday:

9:30 - James Bullard, president of the St. Louis Fed, speaks on a panel discussing policy after the crisis in New York.

10:00 - New Home Sales continue to stagnate. The annualized figure in July declined 0.7% to 298k units and the median estimate for August is 295k. While forecasts range from 275k to 320k, the optimistic readings are still abysmal in the wider scheme of things.

"Sales for the year so far are on track to finish with barely more than 300,000 homes sold," Citigroup noted. "The average selling rate is down 6% from 2010, which was already the weakest year in the nearly 50 year record. The current sales rate is more than 75% below the peak sales year of 2005."

Nomura Global Economics expects to see a 4.4% drop this month to 285k units, based on recent mortgage application volume.

"Surprisingly, building permits for single-family units increased 2.5% in August, which lends some upside risk to the forecast," they said. "According to the Census Bureau, only houses sold prior to being built or those that are built for sale are counted as a new home sale, so strength in building permits in August would indicate stronger new home sales."

3:00 - Narayana Kocherlakota, president of the Minneapolis Fed, speaks on a sovereign debt panel in Chicago.

• Treasury Auctions:
• 11:30 - 3-Month Bills
• 11:30 - 6-Month Bills

Tuesday:

9:00 - The S&P Case-Shiller Home Price Index reported that prices were down 4.5% year-over-year in June. Economists now see signs of stabilization as a decline in mortgage rates spurs activity. One pillar of support for this argument is the FHFA monthly index - it has inched up each of the last four months.

"Taking into account variations in other home price indices over the May-July period, which have already been reported by private research firms such as Zillow.com and Core Logic, the year-over-year change rate of the index likely improved in July from -4.5% in June," said Nomura Global Economics, who forecast the y-o-y rate at -4.2%.

10:00 - The Conference Board's Consumer Confidence index fell nearly 25% in August as it dropped 14.7 points to 44.5, its lowest since April 2009. Not much has improved since then, so the debate is whether the index will deteriorate further or simply sit at this low level.

"Incoming data have weakened recently and equity markets have fallen sharply, suggesting extremely soft consumer confidence," Citigroup said. "However, the confidence index already plummeted in August, as the political process dominated headlines and expectations. That move went further than the fundamental data suggested at that time."

IHS Global Insight notes that last week's plunge in equities following the Fed's policy statement probably came after the survey period ended, so didn't do extra damage to the September confidence reading. One could even argue for upside risk given the five straight days of equity gains seen in the week before.

12:30 - Dennis Lockhart, president of the Atlanta Fed, speaks on the U.S. economy to the World Affairs Council in Jacksonville.

• Treasury Auctions:
• 11:30 - 4-Week Bills
• 1:00 - 2-Year Notes

Wednesday:

2:40am - Eric Rosengren, president of the Boston Fed, addresses Swedbank Economic Outlook Seminar in Stockholm.

8:30 - New Orders for Durable Goods jumped 4% in July on account of aircraft offers. That sets up August for a decline, economists say, and the median estimate is -0.4%. However, several economists noted aircraft orders had another stellar month, so the expected decline following a surge might have to wait a month.

IHS Global Insight notes that Boeing received another 100-airplane order, this time from Delta, so aircraft orders should climb higher. "But the rest of the picture won't look good," they said. "Core capital goods orders should fall about 1%, and motor vehicle and metals orders should be down sharply after a very strong July."

Citigroup actually predicts a 0.7% advance in August.

"Once again, civilian aircraft orders appear set to substantially boost the total," they said. "Apart from aircraft, transportation was weaker on lower truck assemblies. In July, nearly two-thirds of the increase in ex-transportation new orders was from a spike in primary metals. The reversal of this surge accounts for the bulk of our expected decline in August."

• Treasury Auctions:
• 1:00 - 5-Year Notes

Thursday:

8:30 - A new round or revisions to second-quarter GDP is expected to lift the growth rate to 1.2% from 1%. The improved rate, albeit still very slow, is based on private non-residential construction and slightly better trade data (net exports).

"The faster pace of growth does not alter our perception that the economy was extremely weak in the first half," Citigroup said, predicting a higher-than-consensus 1.4%.

"After the dismal first half, we expect a pickup in third quarter growth, which will signal that much of the earlier weakness was temporary," they added. "The latest data show that the economy actually was on an upswing in July, before the latest shock to financial conditions. However, now that financial conditions have taken the hit and risk appetites are smaller, we think any resurgence in third quarter growth will be short-circuited.

8:30 - After falling 9,000 in the previous week, Initial Jobless Claims are expected to come in at 420,000 in the week ending September 24, in line the four-week average of 421k.

Citigroup expects to see just 410k claims, which would be a seven-week low, but say the four-week moving average "remained elevated at a level consistent with lackluster payroll activity."

Continuing claims were 3.742 million in the week ending September 10. Nomura Global Economics notes this gauge has been unable to fall below 3.7 million, "dipping below that level in only three separate occasions this year."

"The downward trend in claims has stalled in recent weeks," Nomura said, "likely the result of increased layoff announcements."

8:30 - Eric Rosengren, president of the Boston Fed, speaks on how supervision can detect failtures to the Global Interdepence Center conference in Stockholm.

8:30 - Charles Plosser, president of the Philadelphia Fed, speaks on the economy to business leaders at Villanova University.

10:00 - The Pending Home Sales Index fell 1.3% in July, marking the first drop in a few months. The index was still up 14.4% above year-ago levels, but economists see room in the fall in the coming months. The August median estimate is -2%.

• Treasury Auctions:
• 1:00 - 7-Year Notes

Friday:

8:30 - The Personal Income & Outlays report is anticipated to show some paltry returns in August. Income is to rise only 0.1%, following gains of 0.3% and 0.2% in the prior two months, while consumption is set to rise 0.2%, following a 0.8% jump in July.

"Weak employment conditions continue to weigh on personal income, with the August report indicating no job growth and a reduction in average earnings," said BBVA. "Continued declines in consumer confidence and flat retail sales for the month suggest conservative spending, particularly after July's surprising jump. Although higher food and energy prices may have contributed to growth in nominal terms, we expect real growth to be minimal."

Nomura Global Economics added that average hourly earnings declined 0.1% in August and employment growth was flat, providing the underpinnings for incomes falling 0.1%.

"We expect spending to increase by 0.3% in August, reflecting an increase in prices," they said. "We expect a headline increase in the PCE price index of 0.3%, which will temper spending in real terms, and we expect core prices to increase by 0.2% m-o-m, which translates into a y-o-y increase of 1.7% compared to 1.5% in July."

9:45 - The Chicago Business Barometer, which tracks the manufacturing and service sectors, has been relatively robust recently despite much slowing down. In August the index fell to 56.5 from 58.8 in July, recording the slowest reading since November 2009. Yet that level was higher than any economist had forecast, as comparable indexes from Philadelphia and New York have been much more volatile. The September index is expected to fall further to 55.5, but that's still well into growth mode.

"Regional manufacturing surveys conducted in early September have shown mixed results, continuing the recent trend of geographical diversion among the economic situation of manufacturers," said Nomura Global Economics. "We expect the Chicago PMI to reflect continued stress on current business conditions in September."

Citigroup noted the Chicago index can be more stable based on how its overall figure is constructed.

"Unlike the Philadelphia Fed index, which can be a subjective assessment of the general business climate, the Chicago and the national ISM indexes are weighted averages of their components," they said. "These components attempt to gauge changes in actual activity. We think this is why the Chicago PMI and the ISMs have been much tamer in recent months, relative to the extremely downbeat Philly survey."

9:55 - Consumer Sentiment is expected to inch forward to 56.8 in September, up from 55.7 in August. The August score represented an 8-point drop to the lowest level since November 2008. A preliminary reading this month showed the index rebound slightly to 57.8, which is now seen as a bit too optimistic given recent volatility and sell-off in the equity market. Whatever the exact figure, the survey sits at recessionary levels.

"The damaging effects on confidence from the debt ceiling crisis and the S&P downgrade may be starting to wear off, but financial markets remain in turmoil and the latest stock market plunge following the Fed's policy decision will reinforce consumer fears of recession," said IHS Global Insight.

11:00 - James Bullard, president of the St. Louis Federal Reserve, speaks at Point Loma Nazarene University in San Diego.