Updated: 07-31-2015

The Market at 03:38PM ET
10-Year: +18/32…2.19…
EUR/USD: 1.0985…
USD/JPY: 123.92…

Moving the Market

-- Q2 Employment Cost Index: Actual +0.2%, Briefing.com Consensus 0.6%, Prior 0.7%

-- July Chicago PMI: Actual 54.7, Briefing.com Consensus 50.5, Prior 49.4

-- July Michigan Sentiment - Final Estimate: Actual 93.1, Briefing.com Consensus 94.0, Prior 93.3

03:38PM ET
Governments Pop on ECI

  • U.S. Treasuries rallied sharply today after the Employment Cost Index showed the smallest gain since the index's creation in 2001. 2's/30's widened by 3 bps in a counter-trend move to the dominant theme of late
  • Yield Check:
    • 2-yr: -6 bps to 0.67%
    • 5-yr: -8 bps to 1.54%
    • 10-yr: -7 bps to 2.19%
    • 30-yr: -2 bps to 2.92%
  • News:
    • The Employment Cost Index rose 0.2% in Q2 2015 after a 0.7% increase in the first quarter. The Briefing.com consensus expected employment costs to rise 0.6%
      • The big change from Q1 to Q2 was in bonuses for "sales and related" positions
      • Benefits growth was very sluggish and was affected by special factors. The predominant one was the redefinition to retirement pension plans
    • The Chicago PMI unexpectedly jumped to 54.7 in July from 49.4 in June. The Briefing.com consensus estimate was only 50.5
      • The gain ended two consecutive months of contractions
      • There was a large improvement in production, as the related index increased to 61.8 in July from 49.8 in June. The production gain came on the heels of strengthening growth in the new orders index (58.5 from 51.7)
    • The final estimate for Michigan Consumer Sentiment in July was 93.1, lower than the Briefing.com consensus of 94.0 and the reading of 93.3 from the preliminary report
      • The index is down from 96.1 in June, which had been the best reading since January
      • The Expectations Index was revised down from 85.2 in the preliminary reading to 84.1. The Current Conditions Index was revised up to 107.2 from 106.0
      • Like the Conference Board's Consumer Confidence Index, the drop in sentiment was likely caused by negative economic reports out of Europe which offset positive indicators such as improved labor market conditions and lower gasoline prices
  • Commodities:
    • WTI Crude: -3.54% to $46.80/bbl.
    • Gold: +0.47% to $1,093.80/troy oz.
    • Copper: -1.18% to $2.349/lb.
  • Currencies:
    • EUR/USD: +0.43% to $1.0985
    • USD/JPY: -0.18% to 123.92
  • Data out Next Week:
    • Monday: June Personal Income and Personal Spending (08:30 ET); June PCE Prices -- Core (08:30 ET); July ISM Index (10:00 ET); Fed Governor Powell (FOMC voter) speaks on The Structure and Liquidity of Treasury Bond Markets (10:50 ET); June Construction Spending (10:00 ET); July Auto and Truck Sales (17:00 ET)
    • Tuesday: June Factory Orders (10:00 ET)
    • Wednesday: MBA Mortgage Index for the week ending 8/1 (07:00 ET); July ADP Employment Change (08:15 ET); June Trade Balance (08:30 ET); July ISM Services (10:00 ET); Crude Inventories for the week ending 8/1 (10:30 ET)
    • Thursday: July Challenger Job Cuts (07:30 ET); Initial Jobless Claims for the week ending 8/1 and Continuing Jobless Claims for the week ending 7/25 (08:30 ET); Natural Gas Inventories for the week ending 8/1 (10:30 ET)
    • Friday: July Employment Situation Report (08:30 ET); June Consumer Credit (15:00 ET)

10-Yr: +18/32… EUR/USD: 1.0985… USD/JPY: 123.92…

02:46PM ET
Dollar Index Loses on ECI

  • The greenback lost against all majors but the Canadian dollar today after the Employment Cost Index for the second quarter showed sluggish wage growth. Markets speculated that the low ECI reading (+0.2% versus the Briefing.com consensus of +0.6%) would delay liftoff in interest rates
    • U.S. Dollar Index: -0.29% to 97.28
  • EUR/USD: +0.33% to $1.0974
    • The euro rallied today as the alternative reserve currency to the U.S. dollar. The weak ECI number sent the euro up roughly 150 pips over the hour after its release
    • Earlier in the morning, Core CPI for the eurozone surprised on the upside. It jumped to a 1.0% gain y/y in July versus 0.8% growth in June
    • Headline CPI for July was +0.2% y/y, as expected. The unemployment rate for June was unchanged at 11.1%, in line with expectations
  • GBP/USD: +0.15% to $1.5621
  • USD/JPY: -0.15% to 123.96
    • Household Spending in Japan dropped a worse-than-expected 3.0% m/m in June. While the National Core CPI unexpectedly grew 0.1% y/y in June, the Tokyo region's Core CPI unexpectedly dropped 0.1% y/y in July
  • USD/CHF: -0.12% 0.9676
    • The Swiss National Bank has taken 50 bln francs of losses on its purchases of euro, due to the Swiss franc's sharp appreciation
  • USD/CAD: +0.67% to 1.3092
    • Canadian GDP declined 0.2% m/m in May, worse than expected and worse than the 0.1% fall in April
  • AUD/USD: -0.01% to $0.7291
    • The Australian PPI rose 0.3% q/q in the second quarter, less than expected. The PPI increased 0.5% in Q1
  • NZD/USD: -0.24% to $0.6584
    • ANZ Business Confidence fell 15.3% in July
    • In June, Private Sector Credit  in New Zealand grew 0.4% m/m, short of expectations

10-Yr: +14/32… EUR/USD: 1.0974… USD/JPY: 123.96…

01:56PM ET
Treasuries Higher, Equities Give Back Gains

  • Government notes bond bonds have barely retraced their post ECI gains as the 5-year note yield remains down 8 bps on the session
  • Yield Check:
    • 2-yr: -6 bps to 0.67%
    • 5-yr: -7 bps to 1.55%
    • 10-yr: -6 bps to 2.20%
    • 30-yr: -3 bps to 2.91%
  • WTI crude has extended its losses to trade down 2.82% at $47.15/bbl.
  • Gold is finding bargain hunters, now up $7.70 at 1,096.10/troy oz.
  • Equities, which popped hard on the Employment Cost Index data, have reversed lower for the moment
    • The S&P 500 is down 0.07% to 2,107.23

10-Yr: +16/32… EUR/USD: 1.1010… USD/JPY: 123.85…

12:52PM ET
5-Year Leads Gains

  • The Treasury market remains bright green on the session after the Employment Cost Index suggested that wage growth slowed to its slowest pace since 1982 in the second quarter
  • WTI Crude remains down 2.00% to $47.55/bbl.
  • The S&P 500 is up 0.14% to 2,111.62 despite the declines in Treasury yields
    • The Russell 2000, which has lagged badly in July and traded a 4-month low on Tuesday, has caught a bid after the Q2 Employment Cost Indicator report. It now stands up 1.02% to 1,244.66
  • The U.S. Dollar Index has recovered from deep losses to trade down 0.47% to 97.10
  • Yield Check:
    • 2-yr: -6 bps to 0.67%
    • 5-yr: -7 bps to 1.55%
    • 10-yr: -5 bps to 2.20%
    • 30-yr: -3 bps to 2.91%

10-Yr: +14/32… EUR/USD: 1.1000… USD/JPY: 124.00…

11:49AM ET
Opinions Differ on ECI

  • Some commentators are noting that the big change from Q1 to Q2 was in bonuses for "sales and related" positions
  • Other observers have zeroed in on the very weak benefits gains, specifically in benefits for unionized workers (-0.8%)
    • Benefits were affected by special factors and the predominant one was the redefinition to retirement pension plans
  • Strategists are not taking September off of the table, but this ECI reading does put a lot more burden on the Hourly Earnings of the July Employment Situation report released on August 7th
  • Yield Check:
    • 2-yr: -5 bps to 0.68%
    • 5-yr: -7 bps to 1.55%
    • 10-yr: -6 bps to 2.20%
    • 30-yr: -4 bps to 2.91%

10-Yr: +15/32… EUR/USD: 1.1047… USD/JPY: 123.92…

11:37AM ET
Lowest ECI Reading in 33 year History Leads to Rate Hike Questions: The Dollar Index came under intense selling pressure following the release of the Employment Cost Index. The ECI is a closely watched measure of wage prices (70% of the index) by the Fed. With strong employment being a building block for the case of a rate hike, market participants were keen to watch the results. What we saw was a miss (+0.2% vs +0.7% Briefing.com consensus) that led to questions about the Fed's ability to raise rates in September. There are some questions on the report, the lowest in its 33 year history, with regards to the impact of Q1 bonuses that dragged down the figure. The ECI was followed by a mixed report that saw the July Chicago PMI beat expectations while the consumer read in Michigan Sentiment was revised down from its preliminary results two weeks ago. The DXY is now trading at 96.81 as it attempts to hold its ground. 

  • The euro saw a big spike as the dollar sold off. The euro was able to run 120 pips in reaction, hitting 1.1114 before seeing resistance. The single currency has had difficulties holding its ground above this area as there have been few signs of buyers. The area continues to see low inflation reads although there are some that point out that this is due to the drop in energy costs. Regardless the number still remains well below the 2% target. And there are growing concerns about the third Greek bailout as the EU sees the IMF dragging its feet as it looks for some sort of realistic debt relief and Tsipras deals with internal party issues. 
  • The pound continues to hold the key 20- and 50 sma areas. But it has yet to prove that it can move above the 1.57-1.58 area. The consolidation appears ready to continue until we see more economic reports and here commentary from Bank of England members.
  • The yen has returned to the 123 level in trade. Yen had slid to 124.40 following a weak round of economic data that included a miss on Household Spending, CPI, and Unemployment Rates. Housing Starts was the lone surprise. This helped generate some belief that the government may be forced into further stimulus. But the move was overrun by the drop in the greenback. This led to a quick 90 pip move higher in the yen. But it has reversed course since running into resistance at 123.50. It is currently trading at 123.88.

10-Yr: +15/32… EUR/USD: 1.1039… USD/JPY: 123.91…

11:10AM ET
30-Year Bond Lags

  • The yield curve is finally seeing some flattening with the 30-year Treasury bond lagging behind the rest of the complex
  • The Chicago PMI rose to 54.7 in July from 49.4 in June. The Briefing.com consensus expected the Chicago PMI to increase to 54.7
    • The jump ended two consecutive months of sub-50 readings
    • There was a large improvement in production, as the related index increased to 61.8 in July from 49.8 in June. The production gain came on the heels of strengthening growth in the new orders index (58.5 from 51.7)
    • Future production growth will remain reliant on new orders. Order backlogs, while better in July (47.9) than they were in June (41.0), remained in a contraction period for the sixth consecutive month
    • Employment levels contracted for a third consecutive month as the related index increased to 46.2 in July from 45.7 in June
  • Yield Check:
    • 2-yr: -7 bps to 0.66%
    • 5-yr: -8 bps to 1.55%
    • 10-yr: -6 bps to 2.20%
    • 30-yr: -4 bps to 2.90%

10-Yr: +17/32… EUR/USD: 1.1047… USD/JPY: 123.90…

10:20AM ET
Chicago PMI Beats, Michigan Sentiment Misses

  • The Chicago PMI unexpectedly jumped to 54.7 in July from 49.4 in June. The Briefing.com consensus estimate was only 50.5
  • The final estimate for Michigan Consumer Sentiment in July was 93.1, lower than the Briefing.com consensus of 94.0 and the reading of 93.3 from the preliminary report
    • The index is down from 96.1 in June, which had been the best reading since January
    • The Expectations Index was revised down from 85.2 in the preliminary reading to 84.1. The Current Conditions Index was revised up to 107.2 from 106.0
    • Like the Conference Board's Consumer Confidence Index, the drop in sentiment was likely caused by negative economic reports out of Europe which offset positive indicators such as improved labor market conditions and lower gasoline prices
  • Treasuries are holding much higher on the session as the Q2 Employment Cost Index reading remains the most important piece of data
  • Yield Check:
    • 2-yr: -5 bps to 0.68%
    • 5-yr: -7 bps to 1.55%
    • 10-yr: -6 bps to 2.20%
    • 30-yr: -4 bps to 2.90%

10-Yr: +15/32… EUR/USD: 1.1087… USD/JPY: 123.70…

09:27AM ET
Treasuries Push Higher

  • By the standards that the FOMC has set for itself, today's atrocious growth in the Employment Cost Indicator for the second quarter of 2015 gives it room to delay liftoff, potentially until 2016. Any discouragement for Treasury bulls that came out of yesterday's upward revision to Q1 GDP has been more than overcome by today's 0.2% reading in the ECI
  • Yield Check:
    • 2-yr: -7 bps to 0.66%
    • 5-yr: -8 bps to 1.54%
    • 10-yr: -6 bps to 2.20%
    • 30-yr: -3 bps to 2.91%
  • 10-Year Yield (Zoomed in)
    • The 10-year Treasury note yield found resistance at its 21 and 50-day moving averages on Thursday and tested the back of its uptrend (red line). Support stands initially at 2.18% from the 38.2% Fibonacci retracement of the 2014 move down in yield. Next is 2.17% which, if broken below, would put us back in the downtrend of 2014. Lastly, 2.143% is the 200-day moving average

  • 10-Year Yield (Zoomed out)

10-Yr: +15/32… EUR/USD: 1.1095… USD/JPY: 123.64…

08:50AM ET
Treasuries Rip Higher

  • Investors are piling back into financial assets this morning after sluggish wage growth in the second quarter is stoking speculation that the Fed will delay rate hikes a while longer
  • Employment costs rose 0.2% in Q2 2015 after a 0.7% increase in the first quarter. The Briefing.com consensus expected employment costs to increase 0.6%
    • That was the smallest increase in employment costs since the index was created in 2001
    • Despite what many consider to be a tightening labor market, employers still have the upper hand when it comes to compensation. There seems to be very little competition to attract employees, which would drive up wages and benefits spending
    • Year-over-year, employment costs are up only 2.0%, which is in-line with the Fed's inflation target. In other words, real expected compensation growth is flat
    • Wages and salaries increased 0.2% in Q2 2015, down from a 0.7% increase in the first quarter. Benefits spending also slowed, up 0.1% after a 0.6% increase in Q1 2015
    • Private industry cost growth was much weaker than the public sector
    • Overall private compensation was flat after increasing 0.7% in the first quarter. Wages and salaries rose 0.2% in the second quarter, down from a 0.7% gain in Q1 2015. Benefits spending declined 0.2% after increasing 0.6% in Q1 2015
    • State and local government compensation increased 0.6% in Q2 2015, up from a 0.5% gain in the first quarter. Both wages and salaries (0.6% from 0.4%) and benefits (0.8% from 0.5%) accelerated in the second quarter
  • Yield Check:
    • 2-yr: -5 bps to 0.68%
    • 5-yr: -6 bps to 1.56%
    • 10-yr: -4 bps to 2.22%
    • 30-yr: -2 bps to 2.93%

10-Yr: +11/32… EUR/USD: 1.1066… USD/JPY: 123.81…

08:25AM ET
Spain and Italy Rally, Germany and France Decline

  • Eurozone unemployment for June was reported as expected at 11.1%, the same level as May. At either end of the spectrum, German unemployment is at 4.7% and the Greek unemployment rate is 25.6. Wages in the eurozone's periphery appreciated rapidly during the run-up to the financial crisis, and they are now having to adjust back down. Due to workers' reluctance to take nominal wage cuts and employers' reluctance to hurt morale and potentially productivity by slashing pay, the downward adjustment is fighting what economists call downward nominal wage rigidity. Were the eurozone to run higher inflation (say 3-4%), nominal wages could stagnate but real wages would decline. That would lower unit labor costs and increase employment in the periphery. Alternatively, were periphery countries to still have their national currencies, those currencies would have devalued against the deutsche mark and their workers would become more attractive relative to German workers. In short, the single currency bloc with its high unemployment and religious opposition to even moderate inflation in the European core is a recipe for prolonged stagnation and political unrest
    • Spain saw some of the best improvement, with its UE rate falling from 24.5% to 22.5%
    • The eurozone's CPI grew 0.2% in the year to July, inline with with expectations
    • Core CPI surprised on the upside, jumping to a 1.0% gain y/y in July versus 0.8% growth in June
    • German Retail Sales unexpectedly fell 2.3% m/m in June versus expectations for a gain
    • French Consumer Spending grew less than expected, up 0.4% m/m in June. Spending grew by 0.1% in May
    • The Swiss National Bank has taken 50 bln francs of losses on its purchases of euro, due to the Swiss franc's sharp appreciation
  • Yield Check:
    • France, 10-yr OAT: +4 bps to 0.98%
    • Germany, 10-yr Bund: +3 bps to 0.65%
    • Greece, 10-yr note: -7 bps to 11.85%
    • Italy, 10-yr BTP: -1 bp to 1.82%
    • Portugal, 10-yr note: +7 bps to 2.44%
    • Spain, 10-yr ODE: -2 bps to 1.89%
    • U.K., 10-yr Gilt: -2 bps to 1.97%

10-Yr: -1/32… EUR/USD: 1.0976… USD/JPY: 124.33…

07:33AM ET
Treasuries Pull Back Ahead of Q2 Employment Cost Index

  • The Treasury complex pulled back overnight with the losses focused in the belly of the yield curve. While we have spilled much ink on the curve-flattening trend of the past three weeks, we have not mentioned the resistance milestones in sight for the 2-year yield. Overnight, the 2-year yield hit its highest level since June 17th. Were the yield to touch 0.82%, that would be its highest level since 2010. The 30-year bond was unchanged overnight as WTI crude fell 1.61% to 47.74/bbl
  • Yield Check:
    • 2-yr: +1 bp to 0.74%
    • 5-yr: +2 bps to 1.64%
    • 10-yr: +1 bp to 2.27%
    • 30-yr: unch at 2.95%
  • International News:
    • The eurozone's CPI grew 0.2% in the year to July, inline with with expectations. Core CPI grew a greater-than-expected 1.0% y/y in July versus 0.8% growth in June
      • German Retail Sales unexpectedly fell 2.3% m/m in June versus expectations for a gain
      • Spanish unemployment declined from 24.5% to 22.5%
      • French Consumer Spending grew less than expected, up 0.4% m/m in June. Spending grew by 0.1% in May
      • The Swiss National Bank has taken 50 bln francs of losses on its purchases of euro, due to the Swiss franc's sharp appreciation
    • The Bank of Russia cut its main policy rate to 11.00% from 11.50%, as expected. The ruble has been suffering lately due to renewed pressure on the oil market
    • In Japan, Household Spending fell a worse-than-expected 3.0% m/m in June. While the National Core CPI unexpectedly grew 0.1% y/y in June, the Tokyo region's Core CPI unexpectedly dropped 0.1% y/y in July
      • Japan's unemployment rate rose to 3.4% in June versus forecasts for no change at 3.3%
      • Housing Starts jumped 16.3% y/y, much better than expectations and the 5.8% growth last month
  • Data out Today:
    • Q2 Employment Cost Index (08:30 ET)
    • July Chicago PMI (09:45 ET)
    • July Michigan Sentiment - Final Estimate (10:00 ET)

10-Yr: -2/32… EUR/USD: 1.0970… USD/JPY: 124.35…

03:22PM ET
Yield Curve Flattens, Again

  • The Treasury complex rallied today in a curve-flattening trade after Q1 GDP growth was revised upward from -0.2% to +0.6%
  • Yield Check:
    • 2-yr: +1 bp to 0.72%
    • 5-yr: unch at 1.62%
    • 10-yr: -2 bps to 2.27%
    • 30-yr: -5 bps to 2.95%
  • News:
    • Initial Jobless Claims for the week ending July 25th rose to 267K from the prior reading of 255K. The Briefing.com consensus was for 272K
      • Continuing Jobless Claims rose to 2262K, higher than the 2200K Briefing.com consensus. The prior reading was 2216K
    • The U.S. economy grew at a 2.3% annualized rate in the second quarter, slower than the Briefing.com consensus of 2.5% but a significant improvement upon the 0.6% growth in Q1. The previous estimate for Q1 growth was -0.2%
      • The GDP Chain Deflator rose 2.0%, more than the Briefing.com consensus of 1.5%. The Chain Deflator increased 0.1% in Q1
    • From Q4 2011 to Q4 2014, U.S. GDP grew at an average annual rate of 2.1%, 0.3 percentage points slower than previous estimates
    • The $29 bln 7-year note auction was met with tepid demand, tailing 0.7 basis points:
      • High yield: 2.021%
      • Bid-to-cover: 2.47
      • Indirect bid: 49.14%
      • Direct bid: 12.01%
  • Commodities:
    • WTI Crude: -0.47% to $48.56/bbl.
    • Gold: -0.46% to $1,087.60/troy oz.
    • Copper: -1.23% to $2.378/lb.
  • Currencies:
    • EUR/USD: -0.52% to $1.0930
    • USD/JPY:+0.17% to 124.12
  • Data out Friday:
    • Q2 Employment Cost Index (08:30 ET)
    • July Chicago PMI (09:45 ET)
    • July Michigan Sentiment - Final Estimate (10:00 ET)

10-Yr: +4/32… EUR/USD: 1.0930… USD/JPY: 124.12…

Copyright © 2008 Briefing.com, Inc. All rights reserved.
Sponsor Center
Sponsored Links
Buy a Link Now
Content Partners