The Market at 03:33PM ET
Moving the Market
New Home Sales (10): Actual 467K, consensus 475K, prior 466K (revised from 504K)
New York doctor returning from aid work in Guinea tests positive for Ebola; Dallas nurse Nina Pham said now to be cured of Ebola
Sunday release of European bank stress test results
Not Good, but Not Bad Either:
The Week Ahead
- At the cash close, yields across the Treasury curve were unchanged
- 2-yr note yield 0.39%
- 5-yr note yield 1.49%
- 10-yr note yield 2.27%
- 30-yr bond yield 3.04%
- Yields had been lower earlier in the session, bolstered by pre-open reports indicating new home prices in China declined 1.3% year-over-year and that a doctor in New York City tested positive for Ebola after returning from aid work in Guinea
- A weaker than expected New Home Sales report in the U.S. also lent the market some early support
- September new home sales increased 0.2% to 467,000 (Briefing.com consensus 475,00) from a downwardly revised 466,000 in August (from 504,000)
- New home prices declined 4.0% year-over-year to $259,000 -- the first decline since April and the largest decline since a 7.7% drop in January 2012
- Early buying interest faded, however, as stocks found their footing and gained momentum on a headline from the NIH confirming Dallas nurse Nina Pham is free of the Ebola virus
- During a bout of selling, the 10-yr note would not break out above 2.300% resistance
- The 2-yr note tested resistance in the 0.40% area, but renewed buying interest knocked it back below levels that were last seen in early June
- The U.S Dollar Index was down 0.2% to 85.71 as the greenback lost some modest ground against the yen and the euro
- Modest strength in the euro belied concerns about the bank stress test results that will be released by the ECB on Sunday
- Press reports, citing people familiar with the matter, suggested that as many as 25 banks will fail the stress test
- Commodities were mixed
- Oil -1.1% to $81.21/bbl
- Gold +0.1% to $1230.40/troy ounce
- Copper unch at $3.04/lb
- Monday's data is limited to pending home sales (10). Attention will also be paid to the results of the ECB bank stress test and the Brazilian election.
- Tuesday will see durable orders (8:30), Case-Shiller 20-city Index (9), and consumer confidence (10). Treasury will auction $29 bln 2Y notes.
- Wednesday will see just the weekly MBA Mortgage Index (7). The FOMC will announce its latest policy decisions (14). Treasury will hold a $35 bln 5Y note auction.
- Thursday's data includes initial and continuing claims and GDP-Adv. (8:30). Treasury will auction $29 bln 7Y notes.
- Friday's data is heavy as personal income and spending, PCE Prices -- Core, Employment Cost Index (8:30), Chicago PMI (9:45), and Michigan Sentiment -- Final (9:55) are all due out.
Markets Await FOMC (Wed): The Dollar Index was able to stem early selling at the 85.53. It has been able to regain some of its losses as it pushes back to the 85.71. But afternoon trading has been uneventful with plenty of side way action. The key for investors will be next week's Fed meeting. The FOMC is expected to wind down its QE program so the bigger interest may surround any potential tweaks to the language.
- The euro mad a push toward 1.27 but saw its rally end at 1.2695. The single currency has pilled back to the 1.2670 level. Market focus will be on the ECB Stress Test results due out Sunday. On the economic front, CPI and Jobs data from Europe and Germany will dominate the focus. But the overall direction will still be driven by the dollar.
- The pound was able to grinding toward 1.61 but failed to test the level and has been grinding sideways between 1.6075 and 1.6090 over the past couple of hours. It is a quiet week on the calendar for the U.K. which suggests the dollar and euro will lead sterling.
- The yen has been straddling the 108 level all day. It has been a relatively uneventful day for the yen as market volatility took a breather.
- Tight trading range for longer-dated Treasuries the past few hours, with the 10-yr note moving in a two tick range
- The 2-yr note tested resistance at 0.40%. A brief foray above that level was eventually met with renewed buying interest that knocked the yield back to 0.39%.
- Stocks continue to hold their own. After some modest selling action in the early afternoon, the Dow, Nasdaq, and S&P 500 are all back near session highs
- Russell 2000 continues to be a notable laggard, down 0.2% for the day
- Stocks have continued to advance, creating some interference for bulls in the Treasury market.
- Earlier gains attributed to Ebola concerns were relinquished as major stock indices pressed to new highs for the day, yet buyers have shown up again with the 10-yr note unable to break out above 2.300% resistance.
- The 2-yr note yield is hitting resistance now in the 0.400% area, a level last seen on June 6 (D-Day)
- Will be interesting to see how market reacts the rest of the day knowing that the ECB will be releasing bank stress test results on Sunday and that the FOMC meeting will be held October 28-29
- Our expectation is that the Fed will announce the cessation of its latest QE program
One Up, One Down:
- Treasuries have all slipped noticeably from their best levels of the day in a move that has coincided with major stock indices pushing to their best levels of the day
- 2-yr note unch at 0.39%
- 10-yr note +2/32 at 2.27%
- 30-yr bond +7/32 at 3.04%
- The jump in stocks and the drop in Treasuries also coincided with a report that Dallas nurse Nina Pham is now free of the Ebola virus
- The Pham update has overshadowed the earlier report of a New York doctor contracting the Ebola virus because it stands out as a tangible marker that the virus can be treated succesfully
- The Ebola safety trade, therefore, has lost some steam
- Oil prices remain a thing to watch as they continue to slip, now down 1.5% at $80.88/bbl
- If oil continues to drop and moves below $80.00/bbl, economic slowdown worries could again drive a renewed bid in Treasuries
New Home Sales Fade, Treasuries Firm:
- Treasury market has held firm even with stocks showing some resilience to selling efforts in the wake of Ebola headlines and disappointing new home sales data
- Longer-dated securities continue to draw bulk of the buying interest
- 10-yr note +9/32 at 2.24%
- 30-yr bond +21/32 at 3.01%
- New home sales increased 0.2% in September to 467,000 from a downwardly revised 466,000 (from 504,000) in August. The Briefing.com consensus pegged new home sales at 475,000 in September.
- The downward revision to the August new home sales data was exceptionally large and removed what was thought to have been the best-performing sales month since May 2008.
- After increasing 28.1% in August, sales in the West fell 8.9% to 112,000 in September. Sales in the Northeast were flat. Gains were registered in both the Midwest (12.3%) and South (2.0%).
- Inventory levels remain stressed. While the overall size of inventories increased 1.5% to 207,000, the months' supply at the current sales pace was unchanged at 5.3 months. A 6 months' supply is considered normal.
- New home prices fell 4.0% y/y to $259,000. That was the first year-over-year price decline since April, and the largest decline since falling 7.7% in January 2012.
Markets Await FOMC (Wed): The Dollar Index continues to threaten to test 86, however it stalled out at the 85.90 area the past two days. The greenback has pulled back during European trade and is now near session lows at 85.69. New Home Sales data is due out at 10am and is the only notable economic report on the docket. But the big item will be next week's FOMC decision (Wed) in which the Fed is expected to withdraw its QE program.
- The euro has been able to rally off the lows and push to 1.2675. A better than expected German GfK Consumer Survey has helped provide a boost. The primary focus for Europe though is the ECB Stress Tests which will be released at 11am GMT on Sunday. It would appear that the central bank is leaking out some of the results in order to avoid any sort of panic close today. Early indication is that 25 banks will fail. This is higher than previously anticipated but not necessarily a negative as some participants will feel that the test is more of a true measure if a few names fail. The euro has pushed to 1.2680 in early trade.
- The pound has pushed back above the 1.60 level after the preliminary look for the Q3 GDP came in line with expectations and better than feared. The country continues to see growth but it has cooled off from recent quarters.
- The yen is testing 108 for resistance. The risk on/off trade has been a primary driver this week for the yen. The markets are uncertain at this moment and that is being reflected in the yen as it trades in a tight range around a key technical level.
Safety Trade in Play (Again):
- New York doctor tests positive for Ebola after returning from aid work in Guinea. Contagion concerns push a safety trade that benefits Treasuries.
- Overnight trade saw the 10-yr yield kiss 2.26% before reversing. 10-yr is currently up 9 ticks with its yield at 2.24%.
- China reports that new home prices declined 1.3% year-over-year in September
- Buying interest more active at the back end of the curve
- 30-yr bond up 20 ticks and yield down three basis points to 3.02% (roughly the level where the 10-yr note started the year)
- Front of the curve also being accorded some buying respect as slowdown worries persist, thereby diminishing concerns about the Fed raising rates before the second half of 2015
- 2-yr yield down one basis point to 0.38%
- US Dollar Index is little changed
- Commodities are mixed
- Crude -1.0% to $81.27/bbl
- Gold +0.4% to $1233.80/troy ounce
- Copper up 0.2% at $3.05/lb
- Data: New Home Sales at 10:00 a.m. ET (Briefing.com consensus 450k; prior 504K)
Dollar Nears 86.00 as Data Remains Strong:
- The Dollar Index holds small gains as trade tests session highs near 85.90.
- Traders continue to watch the 86.00 level as a breakout would put the nearly four and a half-year highs from early-October in the crosshairs.
- EURUSD is +5 pips @ 1.2650 as trade has given up its early gains. The single currency climbed to a high of 1.2675 following this morning's mostly better than expected PMI data from the region. However, the gains would not hold as strong U.S. economic data and skittishness over the upcoming weekend stress tests of EU banks wiped away those gains. The 1.2600 area remains firmly in focus. GfK German Consumer Climate will cross the wires tomorrow.
- GBPUSD is -10 pips @ 1.6030 as sellers fight to remain in control for a third day. A trio of disappointing data in the form of retail sales, BBA Mortgage Approvals, and CBI Industrial Order Expectations led to early action probing 1.6000 support, but buyers managed to defend the level and prevent a retest of the 11-month lows near 1.5900. Britain's Preliminary GDP will be released tomorrow.
- USDCHF is flat @ .9540 as trade continues to flirt with resistance at the level. Action remains closely tied to the euro.
- USDJPY is +105 pips @ 108.25 as trade zooms to a two-week high in the midst of the current six-day winning streak. The return to risk has fueled the rally that has action nearing a test of 108.50 resistance. A retest of six-year highs at 110.00 cannot be ruled out.
- AUDUSD is flat @ .8760 as trade presses its worst levels of the day. The hard currency drifted little changed into U.S. trade before climbing to its best levels of the day in response to strong Caterpillar earnings. However, buyers exhausted and trade has drifted lower over the remainder of the day. Bulls cannot be comfortable as a break out of the .8650/.8850 range appears imminent.
- USDCAD is -5 pips @ 1.1235 as an uneventful session draws to a close. The pair has been virtually ignored in today's trade as investigators continue to piece together the details of yesterday's shooting at Canada's Parliament.