Updated: 09-27-2016

The Market at 03:14PM ET
10-Year: +7/32…1.56…
EUR/USD: 1.1220…
USD/JPY: 100.29…

Moving the Market

  • July Case-Shiller 20-city Index: Actual 5.0%, Briefing.com consensus 5.1%, Prior 5.1%
  • September Consumer Confidence: Actual 104.1, Briefing.com consensus 98.0, Prior 101.1
  • Fed Vice Chair Fischer: Sees sharp decline in labor force participation rate as not a symptom of the Great Recession, suggesting that he sees less slack in U.S. economy; expects wage growth will be 2% in 2016, he wants to see 3%
  • $34 bln 5-year Treasury auction: High yield 1.129%, Bid-to-cover 2.39, Indirect bid 61.4%, Direct bid: 4.4%

03:14PM ET

Treasuries Rally as Oil Prices Decline, Yield Curve Flattens

  • The U.S. Treasury market added to its one-week rally today as the bullish effect of declining oil prices outweighed the bearish effect of a strong bounce in stocks. Another positive factor for Treasuries was Donald Trump's weaker-than-expected performance in Monday night's debate, which lowered the expected size of future U.S. budget deficits. The economic data was balanced to the upside as a slight disappointment from home prices growth for July was outweighed by a post-financial crisis high for consumer confidence and improving activity in the service sector. Fed Vice Chair Fischer said that the decline in the labor force participation rate is mostly due to factors that predate the financial crisis. The S&P 500 is now adding 0.59% to 2,158.7 and the U.S. Dollar Index is up 0.13% to 95.42
  • Yield Check:
    • 2-yr: unch at 0.75%
    • 5-yr: -1 bp to 1.11%
    • 10-yr: -3 bps to 1.56%
    • 30-yr: -4 bps to 2.28%
  • News:
    • The Case-Shiller 20-city index of U.S. house prices rose 5.0% in the year to July, missing the Briefing.com consensus of 5.1%. June's year-on-year growth rate was 5.1%
      • The largest year-on-year gains were in Portland, Seattle, and Denver (12.4%, 11.2%, and 9.4%, respectively)
    • The Conference Board's Consumer Confidence Index rose to a post-crisis high of 104.1 in September from 101.8 in August. The Briefing.com consensus was 98.0
      • The Present Situation Index rose to 128.5 from 125.3
      • The Expectations Index rose to 87.8 from 86.1
    • Markit's Services PMI jumped to 51.9 in September from 51.0 in August
    • The Richmond Fed's Manufacturing Index rose less than expected to -8 in September from -11 in August
    • $34 bln 5-year Treasury auction
      • High yield: 1.129%
      • Bid-to-cover: 2.39
      • Indirect bid: 61.4%
      • Direct bid: 4.4%
    • Vice Fed Chair Stanley Fischer (FOMC voter) said today that the decline in the labor force participation rate is mostly due to factors that predate the financial crisis, indicating that he believes there is not as much slack in the labor market as other FOMC members think there is
  • Commodities:
    • WTI crude: -2.81% to $44.64/bbl. 
    • Gold: -0.99% to $1,330.8/troy oz.
    • Copper: -1.07% to $2.175/lb.
  • Currencies:
    • EUR/USD: -0.24% to 1.1220
    • USD/JPY: -0.07% to 100.29
  • Data out Wednesday:
    • MBA Mortgage Index for the week ending 9/24 (07:00 ET)
    • Durable Goods Orders and Durable Goods Orders ex-transportation (08:30 ET)
    • Crude Inventories for the week ending 9/24 (10:30 ET)
  • Treasury Auction:
    • $28 bln 7-year Treasury auction (results at 13:00 ET)
  • Fed Speakers:
    • Minneapolis Fed President Kashkari (voter in 2017) (08:45 ET)
    • Fed Chair Yellen (FOMC voter) (10:00 ET)
    • St. Louis Fed President Bullard (FOMC voter) (10:15 ET)
    • Chicago Fed President Evans (voter in 2017) (13:30 ET)
    • Cleveland Fed President Mester (FOMC voter) (16:35 ET)
    • Kansas City Fed President George (FOMC voter) (19:15 ET)

10-Yr: +7/32… EUR/USD: 1.1220… USD/JPY: 100.29…

02:19PM ET

Dollar and Mexican Peso Rally

  • The U.S. Dollar Index gained 0.18% to 95.47 as the greenback climbed against the euro and Swiss franc. The Canadian dollar touched a six-month low against the greenback as a 3.27% drop to $44.43/bbl. for WTI crude weighed on the loonie. The Mexican peso rallied quite nicely after Donald Trump had a disappointing debate performance on Monday night. Early Wednesday morning, GfK will release its German Consumer Climate Index
  • EUR/USD: -0.28% to 1.1219
    • The eurozone's broad money supply, as measured by M3, grew 5.1% y/y in August, faster than both forecasts and July's 4.8% growth
      • Eurozone household credit grew by 1.8% y/y in August as lenders retreated a bit from taking risk
      • Business credit in the eurozone grew by 1.9% y/y in August
  • GBP/USD: +0.36% to 1.3016
    • In the U.K., the CBI Distributive Trades Survey, an index of retail sector health, unexpectedly dropped to -8 in September from 9 in August
  • USD/CHF: +0.15% to 0.9709
  • USD/JPY: -0.07% to 100.29
    • In Japan, the Corporate Services Price Index grew just 0.2% in the year to August, falling short of expectations and July's 0.2% growth
  • USD/CNY: +0.02% to 6.671
  • USD/CAD: +0.02% to 1.3226
  • USD/MXN: -2.24% to 19.43
  • AUD/USD: +0.31% to 0.7661 
  • NZD/USD: +0.29% to 0.7299 

10-Yr: +6/32… EUR/USD: 1.1219… USD/JPY: 100.29…

01:44PM ET

Treasuries Moderate Gains as Stocks Rally

  • The U.S. Treasury market is still sharply higher but shorter maturities are struggling to recover to their session highs as the S&P 500 has bounced sharply to add 0.67% to 2,160.3. The 5-year Treasury auction was basically on the screws of the market's expectation, so it is only indicating that demand remains healthy despite a slowly changing central bank environment. The U.S. Dollar Index is up 0.13% to 95.43, well off of its session high (95.67). WTI crude remains lower, down 2.59% to $44.74/bbl., and gold is down 1.03% to $1,330.3/troy oz.
  • Deutsche Bank Chief Economist Joseph LaVorgna says today that Fed Vice Chair Fischer "appears to support" a rate hike in 2016. In remarks earlier, Stanley Fischer tried to avoid speaking on monetary policy or the economic outlook but he did say that the steady decline in the labor force participation rate is mostly due to factors that predate the recession. Namely, that the decline in men in the labor force has been going on since the 1960s along with the rise of women in the workforce AND that the population is aging, leading to a natural decline in the LFPR
  • Yield Check:
    • 2-yr: -1 bp to 0.74%
    • 5-yr: -1 bp to 1.11%
    • 10-yr: -2 bps to 1.56%
    • 30-yr: -4 bps to 2.28%

10-Yr: +6/32… EUR/USD: 1.1224… USD/JPY: 100.28…

01:15PM ET

Treasury Auction Results

  • $34 bln 5-year Treasury auction
    • Auction results:
      • High yield: 1.129%
      • Bid-to-cover: 2.39
      • Indirect bid: 61.4%
      • Direct bid: 4.4%
    • Average results of prior 12 auctions:
      • High yield: 1.381%
      • Bid-to-cover: 2.43
      • Indirect bid: 59.6%
      • Direct bid: 7.4%

10-Yr: +6/32… EUR/USD: 1.1221… USD/JPY: 100.38…

12:00PM ET

Treasuries and Stocks Maintain Gains, Oil Drops

  • Some analysts are speculating that a Trump victory on November 8 could be rapidly followed by a Yellen resignation. Given the political criticism that Trump has directed towards the Fed Chair, this wouldn't be a total shock. The big question would be whether Trump would nominate (and the Senate would confirm) a replacement who would keep monetary policy accommodative in the face of large fiscal deficits. There are a lot of shoes that would have to drop to end up in that scenario though, particularly after Trump's poor performance on Monday night (according to betting markets)
  • 3-month Libor is back down to 0.85% from a post-crisis high of 0.87% on September 20. The looming implementation for new money-market fund regulations on October 14 has tightened financial conditions in money markets even though the FOMC did not raise rates last Wednesday. More from Reuters 
  • Yield Check:
    • 2-yr: -1 bp to 0.74%
    • 5-yr: -1 bp to 1.11%
    • 10-yr: -3 bps to 1.56%
    • 30-yr: -4 bps to 2.28%

10-Yr: +6/32… EUR/USD: 1.1210… USD/JPY: 100.36…

11:53AM ET

Dollar Converges, Peso Bounces: The Dollar Index continues to trade in a tight range as we see the pattern consolidate around the 95.50 area. Moving averages continue to converge into the area with the 100-sma (95.42) and 200-sma (95.99) playing bookends. This trading pattern is likely to tighten further as we move closer to the Presidential elections and a December FOMC meeting. Economic data remains steady with the Case-Shiller housing prices seeing a small miss and the latest Consumer Confidence number showing U.S. shoppers are upbeat ahead of the key holiday season.

  • The euro was trading along the 1.1250 area before running into selling pressure around 8am this morning. The cause of the move is up for debate as most will note the failure to break above 1.1250 led to some selling. But there were some comments from EU officials that suggested little appetite in the EU to assist a potentially troubled Deutsche Bank (DB). The European banking system will move front and center in the coming weeks as worries about under capitalized institutions with troubled loans continue to grow. This issue will garner plenty of attention ahead of the Italian referendum with the potential for bailouts playing a key political role as Spain, Germany, France, and possibly Italy all head toward elections over the next 12 months.
  • The pound has pressed up to test the 1.30 level for resistance. So far it has not been able to break above as investors have shown little interest in owning cable above that level. A realized sales survey in the region fell short of expectations which is helping weigh on the pound.
  • The yen continues to trade int he 100 level. The currency saw bids yesterday as safe haven buying came into play. But it has yet to see a lot of interest above the 100 level. The currency fell back to 101 after the first Presidential debate as it was viewed by most watching that Hilary Clinton had won which temporarily eased concerns. Yen was able to quickly regain those losses. The BoJ minutes were released. The comments helped provide some color around the recent decision but there was little in the notes to change the current narrative around the economy. Some market participants noted a more aggressive language on inflation but we have to admit that we are in disagreement with that take and if anything the comments point to a slow down in inflationary pressures in the region.
  • The Mexico peso has been mentioned as one of the best proxies on who the market expects to win the Presidential rate. With that in mind we will add this to our daily commentary over the next six to seven weeks. The general idea being that Mr. Trump's comments on NAFTA and immigration are bad for Mexico and thus the peso. So when it is down that is due to expectations that Mr. Trump is leading the election. The peso was trading near all time lows (19.94) heading into the election but has been able to rally back to $19.46 in early trade after a solid showing by Ms. Clinton in the first debate.

10-Yr: +07/32… EUR/USD: 1.1203… USD/JPY: 100.40…

11:51AM ET

Treasury Auction Preview

  • $34 bln 5-year Treasury auction (results at 13:00 ET)
    • Prior auction results:
      • High yield: 1.125%
      • Bid-to-cover: 2.54
      • Indirect bid: 68.7%
      • Direct bid: 6.2%
    • Average results of prior 12 auctions:
      • High yield: 1.381%
      • Bid-to-cover: 2.43
      • Indirect bid: 59.6%
      • Direct bid: 7.4%

 


10-Yr: +6/32… EUR/USD: 1.1204… USD/JPY: 100.39…

11:05AM ET

Stock Rally Stalls out, Treasuries Rally Back

  • Treasuries have rallied back from the mid-morning sell-off and the complex is now broadly higher with the yield curve flattening significantly. The S&P 500 is up 0.11% to 2,148.5 and WTI crude is down 3.53% to $44.31/bbl. Gold is down 1.05% to $1,330/troy oz.
  • The Fed fund futures market is implying a probability of 8% for a November rate hike, according to the CME website. The probability of at least one rate hike by year-end is 52%
  • As we mentioned in the European Summary at 08:42 ET, eurozone sovereign bonds are seeing a sharp divergence today. Italian and Portuguese borrowing costs are moving higher while investors are seeking safety in debt of Germany, France, the Benelux countries, and even Spain. Portugal's 10-year PGB yield is up six basis points today to 3.44%. The post-Brexit high is 3.48%. Again, the Italian referendum has been scheduled for December 4 and some analysts are playing it up to be a big deal. It very well may be. More on the situation in Italy here
  • Yield Check:
    • 2-yr: -1 bp to 0.74%
    • 5-yr: -1 bp to 1.11%
    • 10-yr: -3 bps to 1.56%
    • 30-yr: -4 bps to 2.28%

10-Yr: +6/32… EUR/USD: 1.1197… USD/JPY: 100.38…

10:12AM ET

Consumer Confidence Jumps

  • An early Treasury rally has faded in recent trades after Markit's Services Purchasing Managers' Index showed the sharpest jump in economic activity since October. The services sector accounts for the vast majority of economic activity in the United States, so this is encouraging news. While the headline number for Markit's survey was good, the internals of the report were not
  • Markit's Services PMI jumped to 51.9 in September from 51.0 in August
  • According to Chris Williamson, Markit's chief business economist:
    • The service sector sent mixed signals in September, with faster growth of activity during the month offset by gloomy forward-looking indicators. Although business activity showed the largest monthly rise since April, inflows of new business slowed and employment growth was the weakest for three-and-a-half years. A drop in optimism about the year ahead to a near post-crisis low meanwhile cast a shadow over the outlook. What's more, even with the latest uptick in activity, the overall rate of economic growth remains subdued. Add these service sector results to the manufacturing data and the PMI surveys suggest that the economy is growing at an annualised rate of only around 1% again in the third quarter
  • The ISM Services Index fell sharply in August, so concern about a general slowdown in U.S. activity has been percolating for a few weeks
  • The Conference Board's Consumer Confidence Index rose to a post-crisis high of 104.1 in September from 101.8 in August. The Briefing.com consensus was 98.0
    • The Present Situation Index rose to 128.5 from 125.3
    • The Expectations Index rose to 87.8 from 86.1
  • The Richmond Fed's Manufacturing Index rose less than expected to -8 in September from -11 in August
  • Yield Check:
    • 2-yr: -1 bp to 0.74%
    • 5-yr: -1 bp to 1.11%
    • 10-yr: -2 bps to 1.57%
    • 30-yr: -3 bps to 2.29%

10-Yr: +6/32… EUR/USD: 1.1213… USD/JPY: 100.31…

09:28AM ET

Stocks and Oil Down, Treasuries Up

  • U.S. Treasuries are seeing solid gains this morning as the probability of a Trump victory in November and the accompanying risk of massive budget deficits have diminished following the Monday night debate. House price growth in the U.S. moderated in July, according to the Case-Shiller 20-city index. The S&P 500 is set to open down 0.04% to 2,144.1. Stocks appeared to be set for ever-higher prices after more than a year of consolidation and a capitulation sell-off following the June 23 Brexit referendum, or so we thought back in August. We are becoming less confident of that point of view. The U.S. economic data for August was quite weak, the risk of a very poor outcome to China's experiments with financial bubbles remains, and corporate earnings do not seem able to grow, even in this Goldilocks environment of record-low interest rates and limited wage growth. There are intense problems at European banks with Deutsche Bank's recent woes really indicative of a larger problem. Non-performing loans continue to swamp the balance sheets of Italian lenders (EUR360 bln of them)
  • WTI crude is down 2.79% to $44.65/bbl. Goldman reduced its Q4 forecast for WTI to $43 from $50
  • The Case-Shiller 20-city index of U.S. house prices rose 5.0% in the year to July, missing the Briefing.com consensus of 5.1%. June's year-on-year growth rate was 5.1%
    • The largest year-on-year gains were in Portland, Seattle, and Denver (12.4%, 11.2%, and 9.4%, respectively)
    • The smallest gains were in New York City, Washington, and Cleveland (1.7%, 2.0%, and 2.5%, respectively)
    • San Francisco, one of the hottest markets since the financial crisis, saw no change to price month-on-month
    • David Blitzer, the chairman of the index committee, noted that the annual growth rates are probably not sustainable given that inflation is running under 2% but he also noted that there is limited leverage among homeowners
  • Yield Check:
    • 2-yr: -2 bps to 0.73%
    • 5-yr: -2 bps to 1.10%
    • 10-yr: -3 bps to 1.55%
    • 30-yr: -4 bps to 2.28%

10-Yr: +8/32… EUR/USD: 1.1210… USD/JPY: 100.23…

08:42AM ET

Eurozone Core/Periphery Spreads Widen

  • The eurozone sovereign bond market is a tale of two trades this morning as the debt of Germany and France surges ahead while debt issued by Italy and Portugal is in reverse. Since the Spanish election in June, debt of the Iberian country has steadily outperformed that of Italy. Spain appears to have left the club of countries whose borrowing costs can be expected to jump at any sign of another recession in the euro area
  • The Italian constitutional referendum has been scheduled for December 4
  • A German Landesbank, NordLB, pulled a sale of seven-year senior unsecured notes, citing market conditions
  • Economic Data:
    • Germany's import price index fell 0.2% m/m in August (-2.6% y/y), the sharpest decline since February. Year-on-year import price deflation slowed to its smallest decline since July 2015. Pick your narrative
    • In the U.K., the CBI Distributive Trades Survey, an index of retail sector health, unexpectedly dropped to -8 in September from 9 in August
    • In Italy, industrial sales rose by a seasonally adjusted 2.1% m/m in July (-0.7% y/y), reversing June's 1.1% decline
      • Italian industrial new orders plunged by 10.8% m/m in July (-11.8% y/y), adding to June's 2.8% decline
    • The eurozone's broad money supply, as measured by M3, grew 5.1% y/y in August, faster than both forecasts and July's 4.8% growth
      • Eurozone household credit grew by 1.8% y/y in August as lenders retreated a bit from taking risk
      • Business credit in the eurozone grew by 1.9% y/y in August
  • New Issuance:
    • The U.K.'s debt management office sold GBP400 mln of 36-year inflation-linked bonds at -1.77% with a bid-to-cover ratio of 3.12
    • Italy's finance ministry sold EUR2.5 bln of 2-year CTZs at an average yield of -0.216% with a bid-to-cover ratio of 1.8
  • Yield Check:
    • France, 10-yr OAT: -3 bps to 0.16%
    • Germany, 10-yr Bund: -4 bps to 0.15%
    • Greece, 10-yr note: -5 bps to 8.27%
    • Italy, 10-yr BTP: +3 bps to 1.22%
    • Portugal, 10-yr PGB: +6 bps to 3.44%
    • Spain, 10-yr ODE: +1 bp to 0.93% (touched record low of 0.86% earlier)
    • U.K., 10-yr gilt: -4 bps to 0.55%

10-Yr: +8/32… EUR/USD: 1.1204… USD/JPY: 100.32…

07:45AM ET

Yield Curve Flattens

  • U.S. Treasuries are edging higher this morning in a curve-flattening trade as investors digest the first debate of the presidential general election contest. Betting markets indicate a greater probability of a November victory for Hillary Clinton, the Democratic nominee, this morning than they implied before the debate . The Mexican peso rallied and USD/MXN is down 1.71% to 19.54 this morning. The peso has weakened since early September to a record low as Donald Trump's prospects improved. The U.S. economic data calendar is sparse today, but Fed Vice Chair Stanley Fischer is due to speak at 11:15 ET. The S&P 500 is set to open up 0.21% to 2,151.6 and WTI crude is down 1.85% to $45.08/bbl. The U.S. Dollar Index is up 0.12% to 95.41 while gold is down 0.33% to $1,339.6/troy oz.
  • Yield Check:
    • 2-yr: +1 bp to 0.76%
    • 5-yr: unch at 1.12%
    • 10-yr: -1 bps to 1.57%
    • 30-yr: -2 bps to 2.30%
  • International News:
    • In Japan, the Corporate Services Price Index grew just 0.2% in the year to August, falling short of expectations and July's 0.2% growth
    • In the U.K., the CBI Distributive Trades Survey, an index of retail sector health, unexpectedly dropped to -8 in September from 9 in August
    • In Italy, industrial sales rose by a seasonally adjusted 2.1% m/m in July (-0.7% y/y), reversing June's 1.1% decline
      • Italian industrial new orders plunged by 10.8% m/m in July (-11.8% y/y), adding to June's 2.8% decline
    • The eurozone's broad money supply, as measured by M3, grew 5.1% y/y in August, faster than both forecasts and July's 4.8% growth
      • Eurozone household credit grew by 1.8% y/y in August as lenders retreated a bit from taking risk
      • Business credit in the eurozone grew by 1.9% y/y in August
    • Deutsche Bank's travails have caused some hesitation among buyers of other German financial sector debt. A German Landesbank, NordLB, pulled a sale of seven-year senior unsecured notes, citing market conditions
  • Data out Today:
    • July Case-Shiller 20-city Index (09:00 ET)
    • September Consumer Confidence (10:00 ET)
  • Treasury Auction:
    • $34 bln 5-year Treasury auction (results at 13:00 ET)
  • Fed Speaker:
    • Fed Vice Chair Fischer (11:15 ET)

10-Yr: +3/32… EUR/USD: 1.1238… USD/JPY: 100.40…

03:21PM ET

Treasuries Rally as Equities Drop

  • U.S. Treasuries moved moderately higher today as global equity markets lost ground amid concerns about the future of German lender Deutschebank. New home sales slightly beat forecasts, but the data series is volatile and has only a small impact on GDP growth. The S&P 500 is down 0.75% to 2,148.5 and the U.S. Dollar Index is down 0.20% to 95.29. The first debate between presidential candidates Clinton and Trump will be tonight at 21:00 ET
  • Yield Check:
    • 2-yr: -3 bps to 0.73%
    • 5-yr: -4 bps to 1.12%
    • 10-yr: -3 bps to 1.59%
    • 30-yr: -2 bps to 2.32%

  • News:
    • U.S. new home sales fell to a 609K seasonally adjusted annualized rate in August from 659K in July. The Briefing.com consensus was 585K and the July number was revised up from 654K
      • The median selling price was down 5.4% y/y
      • Supply rose to 4.6 months' worth of demand from 4.2 in July
    • The Dallas Fed's Manufacturing Index rose less than expected in September to -3.7 from -6.2 in July
    • Fed Governor Daniel Tarullo said today that the Fed will seek larger capital buffers from large U.S. banks while easing the burden on smaller lenders. This will not affect the 2017 stress test
    • $26 bln 2-year Treasury auction
      • High yield: 0.750%
      • Bid-to-cover: 2.65
      • Indirect bid: 36.7%
      • Direct bid: 19.0%
  • Commodities:
    • WTI crude: +2.70% to $45.68/bbl.
    • Gold: -0.06% to $1,340.9/troy oz. 
    • Copper: -0.59% to $2.188/lb.
  • Currencies:
    • EUR/USD: +0.24% to 1.1255
    • USD/JPY: -0.73% to 100.30
  • Data out Tuesday:
    • July Case-Shiller 20-city Index (09:00 ET)
    • September Consumer Confidence (10:00 ET)
  • Treasury Auction:
    • $34 bln 5-year Treasury auction (results at 13:00 ET)

10-Yr: +8/32… EUR/USD: 1.1255… USD/JPY: 100.30…

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