Updated: 07-27-2016

The Market at 03:14PM ET
10-Year: +14/32…1.520…
EUR/USD: 1.1053…
USD/JPY: 105.48…

Moving the Market

Short end underperforms after Fed holds rates; policy statement attempts to inject some jitters about a hike before 2017

June Durable Orders -4.0% month-over-month (Briefing.com consensus -1.0%); ex-transportation -0.5% month-over-month (Briefing.com consensus 0.2%).

June Pending Home Sales +0.2% (Briefing.com consensus +1.1%)

03:14PM ET

Treasuries Climb After Fed Holds

  • U.S. Treasuries climbed ahead of the afternoon release of the FOMC policy statement, continuing their advance after the release. To little surprise, the statement left the fed funds target range at 0.25% to 0.50%. The statement did not raise concerns that policymakers are in a rush to raise rates, but it was noted that near-term risks to the economic outlook have diminished. Kansas City Fed President Esther George dissented, voting for a 25-basis point hike to a range between 0.50% and 0.75%.
  • The implied probability of a rate hike in September has declined to 18.0% from 20.9% earlier today. The implied likelihood of a rate hike in March 2017 has dipped to 54.5% from 56.2%, according to the fed funds futures market.
  • Yield Check:
    • 2-yr: -4 bps to 0.72%
    • 5-yr: -3 bps to 1.11%
    • 10-yr: -5 bps to 1.52%
    • 30-yr: -5 bps to 2.23%
  • Commodities:
    • WTI crude: -2.0% to $42.05/bbl
    • Gold: +1.3% to $1345.45/ozt
    • Copper: -1.5% to $2.19/lb
  • Currencies:
    • EUR/USD: +0.5% to 1.1042
    • USD/JPY: +0.8% to 105.44
  • Data out Thursday:
    • Weekly Initial Claims (Briefing.com consensus 260K) at 8:30 ET
    • June International Trade in Goods (Briefing.com consensus -$61.20 billion) at 8:30 ET

10-Yr: +14/32… EUR/USD: 1.1053… USD/JPY: 105.48…

02:58PM ET

Dollar Index Flat After FOMC Statement

  • The U.S. Dollar Index (97.15, 0.00) held a slim gain through the bulk of today's session, hitting a fresh high in the wake of an FOMC policy statement that raised the possibility of a rate hike before the end of 2016. The greenback notched a session high against the euro and yen following the statement, but some backtracking has developed in the last 30 minutes. Precious metals have soared to new highs with gold jumping 0.9% to $1340.70/ozt and silver spiking 2.7% to $20.22/ozt.
  • EUR/USD: +0.2% to 1.1008
    • Eurozone Private Sector Loans +1.7% year-over-year, as expected (previous 1.6%) and M3 Money Supply +5.0% year-over-year, as expected (last 4.9%)
    • Germany's August GfK Consumer Climate 10.0 (expected 9.9; last 10.1). June Import Price Index +0.5% month-over-month (expected 0.6%; last 0.9%); -4.6% year-over-year, as expected (last -5.5%)
    • France's June PPI +0.4% month-over-month and July Consumer Confidence ticked down to 96 from 97, as expected
    • Spain's June Retail Sales +5.6% year-over-year (consensus 3.3%; last 2.3%)
    • Italy's July Consumer Confidence 111.3 (consensus 109.2; last 110.2) and Business Confidence 103.1 (expected 101.8; previous 102.9)
  • GBP/USD: +0.3% to 1.3173
    • UK's Q2 GDP +0.6% quarter-over-quarter (expected 0.4%; last 0.4%); +2.2% year-over-year (consensus 2.0%; last 2.0%). July CBI Distributive Trades Survey -14 (expected 1; last 4)
  • USD/CHF: -0.1% to 0.9918
  • USD/JPY: +1.0% to 105.65
  • USD/CNY: UNCH at 6.6703
  • USD/CAD: +0.2% to 1.3211
  • AUD/USD: -0.5% to 0.7469
    • Australia's Q2 CPI +0.4% quarter-over-quarter, as expected (last -0.2%); +1.0% year-over-year (consensus 1.1%; last 1.3%). Q2 Trimmed Mean CPI +0.5% quarter-over-quarter (expected 0.4%; last 0.2%)
  • NZD/USD: -0.1% to 0.7051

10-Yr: +14/32… EUR/USD: 1.1019… USD/JPY: 105.54…

02:12PM ET

  • The long end of the Treasury curve continues holding solid gains while shorter-dated issues have backed away from their highs in reaction to the July FOMC policy statement, which did not call for a rate hike, but did include some language that could be viewed as signaling a move in the near term. Specifically, the FOMC Statement noted that near-term risks to the economic outlook have diminished. Kansas City Fed President Esther George dissented, voting for a 25-basis point hike to a range between 0.50% and 0.75%.
  • Yield Check:
    • 2-yr: -1 bp to 0.75%
    • 5-yr: UNCH at 1.14%
    • 10-yr: -3 bps to 1.54%
    • 30-yr: -5 bps to 2.24%

10-Yr: +9/32… EUR/USD: 1.0975… USD/JPY: 105.83…

12:11PM ET

  • The Treasury market has set new session highs during the past hour with the 30-yr bond pacing the rally. The long end remains well bid while short-dated Treasuries also trade in the green, but the 2-yr and the 5-yr have had to deal with some recent selling.
  • Today's rally across the complex comes after a stretch that saw the short end underperform leading into today's FOMC Statement. With the market prepared for a dovish statement, the potential risk is in comments that could be perceived as hawkish, which could spark selling on the short end of the curve.
  • At this juncture, the implied probability of a hike in September is just 20.9%, according to the fed funds futures market. This leaves March 2017 (56.2%) as the first month with an implied likelihood of a hike greater than 50.0%.
  • Yield Check:
    • 2-yr: -2 bps to 0.74%
    • 5-yr: -2 bps to 1.13%
    • 10-yr: -2 bps to 1.54%
    • 30-yr: -3 bps to 2.25%

10-Yr: +8/32… EUR/USD: 1.0992… USD/JPY: 105.67…

11:10AM ET

  • The Dollar Index continues to hold near the 97 level as we await the latest Fed statement. The market feels pretty comfortable in what it expects which means we will need to pay close attention to make sure the Fed does not deviate at all. In general an uptick in commentary on the economy and jobs is expected in what will be a precursor for a rate hike in one of the upcoming meetings. This could be further emphasized if there is a dissent (most likely George) or two (possibly Mester). Inflation commentary remains a wild card. Economic data ahead of the report was disappointing with the Durable Orders number seeing a second straight weak performance.
  • The euro continues to run into resistance at the 1.10 level as we await the Fed directive. Germany surveys continue to come in better than expected despite the recent terror attacks and Brexit vote as the GfK consumer survey beat expectations. Money supply and Private Loan Growth in the region were in line with expectations.
  • The pound continues to hold the 1.31 area on some mixed data. The U.K. preliminary look at Q2 GDP came in better than expected, giving us some of the first hard data on how the region was impacted by the Brexit vote. But the sentiment data remains weak with a Realized Sales survey missing expectations by a wide margin. The debate on the perceived vs actual impact from the Brexit will continue in the coming months/quarters.
  • The yen saw some aggressive selling overnight as Prime Minister Sihinzo Abe surprised markets by announcing a JPY 28 trl (approx $265 bln) stimulus package. This was larger than had been rumored and the timing was certainly more forward than expected. But there still remains questions on the package as more details will not be released until August 2. The general thesis is that JPY 13 trl will be earmarked for infrastructure spending and loans. It is also expected to span a few years as one budget would be simply to large to accommodate such an uptick in spending. The ball now moves to the Bank of Japan court in which it is expected to announce a bond purchase program in order to assist the stimulus package.

10-Yr: +06/32… EUR/USD: 1.0991… USD/JPY: 105.62…

10:06AM ET

  • U.S. Treasuries hover near their best levels of the session with the long end showing the largest gains while short-dated issues hover just above their flat lines. The underperformance up front is not surprising as participants factor in the possibility of hawkish undertones in the FOMC Statement that could spark a sell off. The FOMC Statement will be released at 14:00 ET.
  • Treasuries barely budged in reaction to the just-released Pending Home Sales report for June (+0.2%; Briefing.com consensus +1.1%), which missed estimates.
  • Yield Check:
    • 2-yr: UNCH at 0.75%
    • 5-yr: UNCH at 1.14%
    • 10-yr: -2 bps to 1.55%
    • 30-yr: -2 bps to 2.26%

10-Yr: +5/32… EUR/USD: 1.1003… USD/JPY: 105.78…

08:34AM ET

  • U.S. Treasuries have inched up following the release of weaker than expected Durable Orders for June. The report showed a headline decrease of 4.0% (Briefing.com consensus -1.0%) while Durable orders ex-transportation declined 0.5% (Briefing.com consensus 0.2%).
  • The 10-yr note climbed ahead of the news, hitting a session high immediately after the data crossed. Similarly, the 30-yr bond moved to a fresh high while short-dated issues remain near their flat lines.
  • Yield Check:
    • 2-yr: -1 bp to 0.75%
    • 5-yr: UNCH at 1.14%
    • 10-yr: -1 bp to 1.55%
    • 30-yr: -2 bps to 2.26%

10-Yr: +5/32… EUR/USD: 1.1002… USD/JPY: 105.60…

08:07AM ET

European Debt Meets Modest Demand

  • Market participants have shown demand for sovereign debt this morning with yields slipping across the region. Concerns about Italian banks have been quickly relegated to the backburner after it was reported that Banca Monte dei Paschi di Sienna is looking to raise EUR5 billion by the end of this week. In other banking news, Deutsche Bank has slumped more than 3.0% after disappointing results.
  • Economic data:
    • Eurozone Private Sector Loans +1.7% year-over-year, as expected (previous 1.6%) and M3 Money Supply +5.0% year-over-year, as expected (last 4.9%)
    • Germany's August GfK Consumer Climate 10.0 (expected 9.9; last 10.1). June Import Price Index +0.5% month-over-month (expected 0.6%; last 0.9%); -4.6% year-over-year, as expected (last -5.5%)
    • UK's Q2 GDP +0.6% quarter-over-quarter (expected 0.4%; last 0.4%); +2.2% year-over-year (consensus 2.0%; last 2.0%). July CBI Distributive Trades Survey -14 (expected 1; last 4)
    • France's June PPI +0.4% month-over-month and July Consumer Confidence ticked down to 96 from 97, as expected
    • Swiss June Consumption Indicator 1.34 (last 1.24)
    • Spain's June Retail Sales +5.6% year-over-year (consensus 3.3%; last 2.3%)
    • Italy's July Consumer Confidence 111.3 (consensus 109.2; last 110.2) and Business Confidence 103.1 (expected 101.8; previous 102.9)
  • Yield Check:
    • France, 10-yr OAT: -2 bps to 0.18%
    • Germany, 10-yr Bund: -1 bp to -0.04%
    • Greece, 10-yr Note: +2 bps to 8.01%
    • Italy, 10-yr BTP: -1 bp to 1.25%
    • Portugal, 10-yr PGB: UNCH at 3.02%
    • Spain, 10-yr ODE: -1 bp to 1.11%
    • UK, 10-yr Gilt: -4 bps to 0.79%

10-Yr: -1/32… EUR/USD: 1.0993… USD/JPY: 105.69…

07:46AM ET

Treasuries Maintain Slim Ranges Ahead of Fed

  • U.S. Treasuries spent the overnight session inside narrow ranges, seeing some selling after reports from Japan indicated the country's government is preparing a JPY28 trillion fiscal stimulus package. However, that brief wave of selling has been retraced completely over the past few hours, leaving the 10-yr note just below its flat line. The long bond holds a slim gain while the 5-yr note hovers in the red ahead of the latest FOMC policy decision, which will be released at 14:00 ET.
  • Australia reported its latest inflation data overnight with Q2 CPI rising 0.4% quarter-over-quarter, as expected (last -0.2%); +1.0% year-over-year (consensus 1.1%; last 1.3%). Q2 Trimmed Mean CPI increased 0.5% quarter-over-quarter (expected 0.4%; last 0.2%)
  • The S&P 500 futures hold a modest gain while Nasdaq futures outperform thanks to better than expected earnings from Apple (AAPL). The Dollar Index has edged up 0.1% while crude oil is down 0.5% at $42.70/bbl. Gold futures are little changed at $1327.60/ozt.
  • Yield Check:
    • 2-yr: UNCH at 0.76%
    • 5-yr: +2 bps to 1.16%
    • 10-yr: UNCH at 1.57%
    • 30-yr: -1 bp to 2.28%
  • Economic data on Tap:
    • June Durable Orders (Briefing.com consensus -1.0%) and Durable Orders ex-transportation (Briefing.com consensus 0.2%) at 8:30 ET
    • June Pending Home Sales (Briefing.com consensus 1.1%) at 10:00 ET
    • Crude Inventories at 10:30 ET
    • July FOMC Rate Decision at 14:00 ET (no policy change expected)

10-Yr: UNCH… EUR/USD: 1.0995… USD/JPY: 105.70…

03:07PM ET

Treasuries Hold Ground Ahead of Fed

  • U.S. Treasuries held solid gains overnight after a cautious session in Asia, but slow and steady selling began taking hold in the early morning hours. That selling continued in morning action with the complex finding support right after a $34 billion, 5-yr auction, which was nearly as weak as yesterday's 2-yr offering. Today's auction drew a bid-cover ratio of 2.27, representing the lowest level since September 2009.
  • Market participants have been reluctant to dive into short-dated debt in case the tone of tomorrow's policy statement from the Federal Reserve begins setting the stage for a rate hike before the end of 2016. Currently, the fed funds futures market estimates that the next rate hike will take place in March (56.2%), while the implied likelihood of a hike tomorrow sits at a lowly 3.6%.
  • Yield Check:
    • 2-yr: -1 bp to -0.76%
    • 5-yr: UNCH at 1.14%
    • 10-yr: -1 bp to 1.56%
    • 30-yr: -1 bp to 2.28%
  • Commodities:
    • WTI crude: -0.5% to $42.91/bbl
    • Gold: +0.1% to $1320.80/ozt
    • Copper: +0.5% to $2.23/lb
  • Currencies:
    • EUR/USD: -0.1% to 1.0987
    • USD/JPY: -1.1% to 104.62
  • Data out Wednesday:
    • MBA Mortgage Index at 7:00 ET (prior -1.3%)
    • June Durable Orders (Briefing.com consensus -1.0%) and Orders ex-transportation (Briefing.com consensus 0.2%) at 8:30 ET
    • June Pending Home Sales (Briefing.com consensus 1.1%) at 10:00 ET
    • Crude Inventories at 10:30 ET
    • July FOMC Rate Decision at 14:00 ET (no policy change expected)

10-Yr: +3/32… EUR/USD: 1.0986… USD/JPY: 104.63…

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