Updated: 05-29-2015

The Market at 03:31PM ET
10-Year: +7/32…2.11…
EUR/USD: 1.0985…
USD/JPY: 124.13…

Moving the Market

-- Q1 GDP -- Second Estimate: Actual -0.7%, Briefing.com Consensus -0.7%, Prior +0.2% 

-- Q1 GDP Deflator -- Second Estimate: Actual -0.1%, Briefing.com Consensus -0.1%, Prior -0.1%

-- May Chicago PMI: Actual 46.2, Briefing.com Consensus 53.0, Prior 52.3

-- May Michigan Sentiment - Final: Actual 90.7, Briefing.com Consensus 89.0, Prior 88.6

03:31PM ET
Governments Rally on Bad Data

  • The Treasury complex pushed higher today, first on the weak Q1 GDP number (-0.7%) and then on a Chicago PMI that showed the second sub-50 reading of 2015. The 5-year led the gains, but all maturities participated
  • Yield Check:
    • 2-yr: -2 bps to 0.61%
    • 5-yr: -4 bps to 1.48%
    • 10-yr: -2 bps to 2.11%
    • 30-yr: -1 bp to 2.88%
  • News:
    • First quarter GDP was revised down to -0.7% in the second estimate from an originally reported +0.2% in the advance release. GDP increased 2.2% in Q4 2014. The Briefing.com Consensus expected GDP to be revised down to -0.7%
      • Real final sales, which strips out volatile inventories, declined 1.1%, reflecting a growth trend that is one of the worst since the Great Recession
      • The real trade deficit was revised down to -$548.4 bln from -$522.1 bln in the advance release. That caused a 1.90 percentage point reduction in first quarter GDP growth, up from a 1.25 reduction in the advance release
    • The Chicago PMI declined to 46.2 in May from 52.3 in April. The Briefing.com Consensus expected a gain to 53.0
      • The Production Index dropped to 45.8 in May from 52.7 in April. That move came as both the new orders (47.5 from 55.1) and unfilled orders (47.3 from 48.5) indices softened considerably
    • The University of Michigan Consumer Sentiment Index was revised up to 90.7 in the May final reading from 88.6 in the preliminary reading. The index is still down from 95.9 in April
    • The economy minister of Greece, Giorgos Stathakis, said that Greece will make the June 5th payment due to the IMF
  • Commodities:
    • WTI Crude: +4.30% to $60.16/bbl
    • Gold: +0.19% to $1,191.0/troy oz.
    • Copper: -1.50% to $2.726/lb.
  • Currencies:
    • EUR/USD: +0.14% to $1.0985
    • USD/JPY: +0.29% to 124.11
  • Week Ahead:
    • Monday: April Personal Income and Personal Spending (08:30 ET); April PCE Prices - Core (08:30 ET); Boston Fed President Rosengren speaks before the 2015 Workforce Stars Breakfast (09:05 ET); May ISM Index (10:00 ET); April Construction Spending (10:00 ET)
    • Tuesday: April Factory Orders (10:00 ET); May Auto and Truck Sales (17:00 ET)
    • Wednesday: MBA Mortgage Index for the week of 5/30 (07:00 ET); May ADP Employment Change (08:15 ET); April Trade Balance (08:30 ET); May ISM Services (10:00 ET); Crude Inventories for the week of 5/30 (10:30 ET); Fed's Beige Book (14:00 ET); Chicago Fed President Evans (FOMC voter) speaks before the Chicago Banking Symposium (14:15 ET)
    • Thursday: May Challenger Job Cuts (07:30 ET); Initial Jobless Claims for the week of 5/30 and Continuing Jobless Claims for the week of 5/23 (08:30 ET); Q1 Productivity - Revised and Unit Labor Costs - Revised (08:30 ET); Natural Gas Inventories for the week of 5/30 (10:30 ET)
    • Friday: May Employment Situation Report (08:30 ET); New York Fed President Dudley (FOMC voter) speaks before the Economic Club of Minnesota (12:30 ET); April Consumer Credit (14:00 ET)

10-Yr: +7/32… EUR/USD: 1.0985… USD/JPY: 124.13…

02:54PM ET
Majors Are Little Changed

  • The U.S. dollar saw only small movements against the majors today, despite a bad miss on May's Chicago PMI (46.2 versus Briefing.com consensus of 53.0)
  • EUR/USD: +0.14% to $1.0984
    • German retail sales beat expectations, rising 1.7% m/m in April against a 1.4% decline in March
    • Spanish and Italian CPI and HICP (harmonized index of consumer prices) readings also beat estimates, adding evidence to the idea that the European periphery is gaining momentum relative to the core
  • USD/JPY: +0.23% to 124.02
    • The pair is trading very close to a 13-year high
  • USD/CHF: -0.34% to 0.9393
  • GBP/USD: -0.20% to $1.5298
  • USD/CAD: +0.10% to 1.2433
    • Canadian GDP contracted 0.6% in the first quarter of 2015. That is deepest contraction since the crisis
  • AUD/USD: -0.06% to $0.7654
  • NZD/USD: -1.18% to $0.7109

10-Yr: +13/32… EUR/USD: 1.0985… USD/JPY: 124.02…

02:08PM ET
Crude up Almost 5%, Stocks Recover (Mostly)

  • Activity in Treasuries has slowed down this Friday afternoon, although the buying of crude oil and equities has been steady (equities abating at the pixel)
    • The S&P 500 is now down only 0.26% to 2,115.33. The late-morning rally was relentless, but felt more like the shorts from the morning deciding that they didn't want to take those positions home with headline risk over the weekend
      • The risk would come from resolution on Greece, but there are also China's manufacturing and non-manufacturing PMIs to be released on Sunday night
    • WTI crude oil is up 4.85% to $60.48/bbl, but that is having no effect on Treasuries
  • Market observers are noting that there haven't been two consecutive Chicago PMIs below 50 since 2009. Since 1990, every time that there were two sub-50 readings in one year (signalling contraction) in the Chicago PMI, there has been a recession. You can explore the data further here
  • Yield Check:
    • 2-yr: -3 bps to 0.60%
    • 5-yr: -4 bps to 1.47%
    • 10-yr: -4 bps to 2.10%
    • 30-yr: -4 bps to 2.85%

10-Yr: +11/32… EUR/USD: 1.0989… USD/JPY: 124.00…

01:14PM ET
Treasuries Gain

  • Governments are still higher this afternoon with the gains evenly distributed across the yield curve. The rally in equities, spurred by Greece's economy minister who said that Greece would make its June 5th payment to the IMF, has not induced selling in Treasuries. Traders and investors are still focusing on the Chicago PMI miss and perhaps mulling over the 0.7% contraction in GDP in the first quarter of 2015. The GDP news was expected
  • A big part of the problem with the U.S. economy in the first quarter was the strong dollar. Exports minus imports (For the economists, Y = C + I + G + (X-M)), exports net of imports adds into GDP) fell because the U.S. exported less and imported more. Corporate profits fell 8.7% after tax, and that could have had to do with repatriating earnings into a stronger dollar
  • Yield Check:
    • 2-yr: -3 bps to 0.60%
    • 5-yr: -4 bps to 1.48%
    • 10-yr: -3 bps to 2.10%
    • 30-yr: -3 bps to 2.86%

10-Yr: +10/32… EUR/USD: 1.0988… USD/JPY: 124.08…

12:08PM ET
Equities Show Weakness

  • The yield curve is flatter this morning as the Treasury complex digests the weak economic data. Chicago PMI tends to be a volatile number, but the components did not look good
    • New Orders fell to 47.5 from 55.1. The only sub-index that rose was Prices Paid
  • Equities are recovering as they tend to do, and WTI crude is extending its gains
    • SPX 500: -0.40% to 2112.33
    • WTI Crude: +3.19% to $59.52/bbl
  • Yield Check:
    • 2-yr: -2 bps to 0.61%
    • 5-yr: -3 bps to 1.48%
    • 10-yr: -3 bps to 2.10%
    • 30-yr: -3 bps to 2.85%
  • The Economy Minister of Greece says that it will make its June 5th payment of 305 million euro to the IMF. This is likely driving the equity rally

10-Yr: +10/32… EUR/USD: 1.0992… USD/JPY: 124.03…

11:30AM ET
Markets Await ECB and Jobs Next Week: The Dollar Index has tumbled below the 97 level. The move was facilitated by some poor economic data. The Q1 GDP was revised to -0.7% (in line with Briefing.com consensus) from the first reading of +0.2%. The Chicago PMI also saw a big miss. The Michigan Sentiment number saw a slight upward revision. The news has helped lead the dollar lower and bring the 50-sma (96.55) into play. Focus will now turn to next week's jobs data (Fri).

  • The euro is seeing a small bounce that has it testing its 50 sma (1.0966). The move comes despite cautious headlines surrounding the Greek situation. An IMF payment next week (Thu) will be a closely watched event. It was a busy day on the economic front in the region as Germany Retail Sales (beat), French PPI (weak), Spain inflation (Mixed), Italy GDP revision (beat), Spain Current Account (beat), Greece Retail Sales (Beat), Greece PPI (weak), and Greece Q1 GDP revision (lower) all hit the wires. But the Greek debt story remains the most captivating for market participants.
  • The pound remains offered but is showing some signs of holding the 1.5240 level. From April 14 to May 14 the currency rallied approx 10% but it has given up approx half of those gains over the past two weeks. The 50- and 100-sma are converging at 1.5164 which will set up as a key test for support. The Bank of England meets next week (Thu) but is not expected to take any action.
  • The yen remains in the 124 area despite the dollar weakness. The currency is showing some signs of holding on following selling to fresh multi-year lows over the past week. Japan had a slew of economic reports out overnight that included a preliminary look at Industrial Production (beat), CPI (hot), Unemployment (beat) and Housing Starts (beat) which are helping provide some support.

10-Yr: +07/32… EUR/USD: 1.0971… USD/JPY: 124.05…

11:25AM ET
30-Year Yield:

  • It's likely that the resistance we found at the 30-year bond's high today had to do with people selling against the support in its yield at the 200-day moving average and the back of the downtrend that we broke in early May. We're hesitant here based on flight-to-quality concerns and market sentiment still being quite negative (contrary indicator), but there is a chance that this is another major low in yields 

10-Yr: +7/32… EUR/USD: 1.0971… USD/JPY: 124.09…

10:44AM ET
U.S., Canada, and Brazil Face Negative Growth

  • Along with the U.S. economy's 0.7% decline in GDP for Q1 2015, Canada's GDP shrank by 0.6% and Brazilian GDP fell by 0.2%. Even if there are seasonal adjustment problems in the Bureau of Economic Analysis's calculations, the first quarter was not a good one for growth in the Western Hemisphere
  • Yield Check:
    • 2-yr: -2 bps to 0.61%
    • 5-yr: -2 bps to 1.49%
    • 10-yr: -2 bps to 2.11%
    • 30-Yr: -3 bps to 2.86%
  • Equities are declining this morning. The S&P 500 is down 0.66% to 2,112
  • The odds of the Fed hiking by December are down to 55% versus 60% yesterday
  • The 30-year tested its 200-day average yield this morning at 2.843%
    • WTI crude is rallying 2.46% to $59.10/bbl after trading its 50-day moving average yesterday, suggesting that there may be room for a range trade between $56 and $64. That scenario for oil could keep further Treasury rallies at bay

10-Yr: +8/32… EUR/USD: 1.0980… USD/JPY: 123.84…

10:15AM ET
Chicago PMI Misses Badly, Sentiment Beats

  • Treasuries are still holding higher after a much lower than expected May reading of the Chicago PMI. The metric was at 46.2 that month versus the Briefing.com consensus of 53.0 and an April reading of 52.3
  • Michigan Sentiment was at 90.7 in May, better than the Briefing.com consensus of 89.0 and the prior reading of 88.6
    • The month-over-month decline in sentiment generally reflected higher gasoline prices
  • Yield Check:
    • 2-yr: -2 bps to 0.61%
    • 5-yr: -2 bps to 1.49%
    • 10-yr: -3 bps to 2.11%
    • 30-yr: -3 bps to 2.86%
  • After a heroic effort to recover from overnight losses, U.S. equity indices are back in negative territory

10-Yr: +7/32… EUR/USD: 1.0978… USD/JPY: 123.85…

09:03AM ET
GDP and GDP Deflator In-line

  • The Treasury complex is broadly higher after the second estimate of Q1 GDP and the GDP deflator matched estimates. GDP fell 0.7% and the deflator fell 0.1%. This was the first contraction in growth since Q1 2014
    • Exports shrank by 7.6% in Q1 and import rose by 5.6%
    • Corporate profits fell by 8.7% after tax
  • Real final sales, which strips out volatile inventories, declined 1.1%. That topped the 1.0% decline from Q1 2014 and was the biggest real final sales drop since a 3.3% decline in Q1 2009. That would suggest that economic growth trends in Q1 2015 were some of the worst seen since the Great Recession
  • The BEA is aware of the seasonal adjustment issues in GDP calculations over the past few years and will try to address it in the Q2 2015 advance GDP report 
  • Yield Check:
    • 2-yr: -2 bps to 0.61%
    • 5-yr: -2 bps to 1.49%
    • 10-yr: -3 bps to 2.11%
    • 30-yr: -3 bps to 2.86%

10-Yr: +8/32… EUR/USD: 1.0975… USD/JPY: 123.99…

08:24AM ET
European Sovereigns Continue Rally

  • Inflation in Spain and Italy exceeded market expectations 
    • The CPI in Spain grew 0.5% m/m in May and the HICP (harmonized index of consumer prices) rose 0.4% m/m
    • In Italy, both the CPI and HICP grew 0.2% m/m in May
    • The European Central Bank prefers the harmonized indices for its inflation targeting 
  • German Retail Sales beat expectations, growing 1.7% m/m in April
  • KOF Leading Indicators in Switzerland for May was 93.1, ahead of expectations and the 89.8 reading in April
  • U.S. Treasury Secretary Jack Lew gave a press conference in Dresden at the meeting of the G7 finance ministers
    • He called on Greece to produce a credible set of reforms. He also called on surplus nations doing more to create growth, which obviously refers to Germany
  • Greeks withdrew 5.6 billion euro from the banking system in April
    • Greek GDP fell 0.2% in Q1 2015
  • Yield Check:
    • France, 10-yr OAT: -3 bps to 0.81%
    • Germany, 10-yr Bund: -3 bps to 0.50%
    • Greece, 10-yr note: +15 bps to 11.07%
    • Italy, 10-yr BTP: -2 bps to 1.84%
    • Portugal, 10-yr note: +4 bps to 2.56%
    • Spain, 10-yr Bono: -2 bps to 1.82%
    • U.K., 10-yr Gilt: -3 bps to 1.82%

10-Yr: +3/32… EUR/USD: 1.0976… USD/JPY: 123.90…

07:31AM ET
Treasuries Little Changed

  • Despite some overnight equity volatility, governments are generally flat before the open with the yield curve slightly steeper. European yields are lower, with the exception of Portugal and Greece, despite some positive European economic releases. The German 10-year Bund is now yielding only 0.50%, from 0.80% on May 7th 
  • Yield Check:
    • 2-yr: unch at 0.63%
    • 5-yr: unch at 1.51%
    • 10-yr: -1 bp to 2.13%
    • 30-yr: -2 bps to 2.87%
  • International News:
    • Germany's Retail Sales report handily beat expectations, growing 1.7% m/m in April versus a 1.4% decline in March
    • French Consumer Spending fell 0.1% in April, missing expectations but beating March's drop of 0.7%
    • Inflation in the Spanish economy exceeded expectations, with both the CPI and the harmonized index of consumer prices beating expectations, down 0.2% and 0.3% m/m, respectively
    • Italian CPI also beat expectations, rising 0.2% m/m
      • Spanish and Italian inflation metrics surpassing expectations feeds into the developing theme of stronger growth and price pressures in the European periphery versus the European core
    • At the meeting of G7 finance ministers, Wolfgang Schauble, the German finance minister, said that Greece has until June 30th, when the existing program expires, to reach a deal with its creditors
  • Data out Today:
    • Q1 GDP - Second Estimate and GDP Deflator - Second Estimate (08:30 ET)
    • May Chicago PMI (09:45 ET)
    • May Michigan Sentiment - Final (10:00 ET)

10-Yr: +3/32… EUR/USD: 1.0967… USD/JPY: 123.89…

03:31PM ET
Yield Curve Steepens

  • The front end gained and bonds lost ground today in a trade after data showed an improving U.S. economy but played second fiddle to risk from Greece and China 
  • Yield Check:
    • 2-yr: -3 bps to 0.62% 
    • 5-yr: -2 bps to 1.51%
    • 10-yr: unch at 2.13%
    • 30-yr: +2 bps to 2.89%
  • News:
    • Chinese equities plummeted overnight with the Shanghai Composite falling 6.5%
    • In the U.S., there were 282,000 Initial Jobless Claims for the week ending May 23 from an upwardly revised 275,000 (from 274,000) for the week ending May 16. The Briefing.com consensus called for 274,000
      • The current level of claims is commensurate with a monthly employment number of at least 200,000
    • The finance ministers of the G7 nations met in Dresden and discussed how to improve economic growth from its current, sluggish pace. Greece was not officially on the agenda, but it will be on Friday
    • The National Association of Realtors' pending home sales index hit a 9-year high, rising 3.4% m/m in April
    • The $29 billion 7-year Treasury note auction was met with strong demand. The auction stopped through, although by less than 1 basis point
      • High yield: 1.888% (26.73% allotted at high)
      • Bid-to-cover: 2.49
      • Indirect bid: 53.83%
      • Direct bid 12.0%
  • Commodities:
    • WTI Crude: +0.43% to $57.76/bbl
    • Gold: +0.25% to $1,188.60/troy oz.
    • Copper: +0.13% to $2.772/lb.
  • Currencies:
    • EUR/USD: +0.36% to $1.0938
    • USD/JPY: +0.24% to 124.05
  • Data out Friday:
    • Q1 GDP - Second Estimate and GDP Deflator - Second Estimate (08:30 ET)
    • May Chicago PMI (09:45 ET)
    • May Michigan Sentiment - Final (10:00 ET)

10-Yr: -1/32… EUR/USD: 1.0938… USD/JPY: 124.05…

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