Updated: 10-18-2018

The Market at 10:44AM ET
10-Year: -6/32…3.207…
EUR/USD: 1.1489…
USD/JPY: 112.55…

Moving the Market

-- Continued selling pressure puts Treasuries near October lows

-- Weekly Initial Claims (actual 210K; Briefing.com consensus 212K; prior 215K), Continuing Claims (actual 1640K; prior 1653K), and October Philadelphia Fed (actual 22.2; Briefing.com consensus 20.0; prior 22.9)

-- September Leading Indicators (actual 0.5%; Briefing.com consensus 0.5%; prior 0.4%)

10:44AM ET

Hovering Near Opening Levels

  • Recent action saw Treasuries climb off their morning lows, but once again, the buying was short-lived, and followed by a return to opening levels. The long bond shows slight relative weakness while shorter tenors trade slightly ahead. On a somewhat related note, the U.S. Dollar Index has revisited its overnight high, but recent action saw the Index backtrack from that level. The Index remains higher by 0.1% at 95.70. St. Louis Fed President James Bullard spoke not long ago. Mr. Bullard, who only has an alternate vote on this year's FOMC, said he has been willing to go along with rate hikes due to strong growth, but added he does not believe the Fed should pencil in more hikes at this time.
  • Yield Check:
    • 2-yr: +2 bps to 2.90%
    • 5-yr: +2 bps to 3.06%
    • 10-yr: +2 bps to 3.20%
    • 30-yr: +3 bps to 3.38%

10-Yr: -6/32… EUR/USD: 1.1489… USD/JPY: 112.55…

10:17AM ET

Data Recon

  • The Conference Board's Leading Economic Index increased 0.5% in September (Briefing.com consensus +0.5%) after increasing an unrevised 0.4% in August.
  • The key takeaway from the report is that there was widespread strength in the basket of leading indicators. The strongest contribution came from average consumer expectations for business conditions (+0.14 percentage points), which should be constructive for consumer spending activity.
    • The only indicators detracting from the increase in September were the average workweek for manufacturing production workers (-0.07 pp) and building permits (-0.02 pp).
    • The ISM New Orders Index (+0.13 pp), the interest rate spread (+0.12 pp), and the Leading Credit Index (+0.11 pp) were the other big contributors to the September increase.
    • In the six-month period ending September 2018, the Leading Economic Index increased 2.8% versus 4.1% over the previous six months.
    • The Coincident Economic Index increased 0.1% after increasing 0.3% in August.
    • The Lagging Index declined 0.1% after increasing 0.2% in August.
  • Yield check:
    • 2-yr: +2 bps to 2.90%
    • 5-yr: +1 bp to 3.05%
    • 10-yr: +1 bp to 3.19%
    • 30-yr: +2 bps to 3.37%

10-Yr: +2/32… EUR/USD: 1.1486… USD/JPY: 112.48…

09:09AM ET

Opening Lows Revisited

  • U.S. Treasuries saw some light buying after starting the cash session on a lower note, but the early bid failed to gain traction, allowing Treasuries to slip beneath their opening lows. Elsewhere, the U.S. Dollar Index is up 0.1% at 95.66, but it remains below its early-morning high. Equities are on course for a lower start, as futures on the S&P 500 trade eight points below fair value.
  • Yield Check:
    • 2-yr: +3 bps to 2.91%
    • 5-yr: +2 bps to 3.06%
    • 10-yr: +3 bps to 3.21%
    • 30-yr: +3 bps to 3.38%

10-Yr: -6/32… EUR/USD: 1.1495… USD/JPY: 112.57…

09:04AM ET

Data Recon

  • Initial claims for the week ending October 13 dropped by 5,000 to 210,000 (Briefing.com consensus 212,000). Continuing claims for the week ending October 6 decreased by 13,000 to 1.640 million, which is the lowest level since August 4, 1973.
    • The key takeaway from the report is that it covered the week in which the survey for the October employment report was conducted. Accordingly, with the low level of initial claims, economists will have a basis to forecast another solid increase in nonfarm payrolls.
  • The Philadelphia Fed Index eased to 22.2 in October (Briefing.com consensus 20.0) from 22.9 in September. The dividing line between expansion and contraction for this regional manufacturing survey is 0.0.
    • The key takeaway from this report is that manufacturers remain optimistic about the outlook, as 48% of respondents expect business activity to increase over the next six months versus only 14% that expect declines.
  • Yield check:
    • 2-yr: +3 bps to 2.91%
    • 5-yr: +3 bps to 3.07%
    • 10-yr: +2 bps to 3.20%
    • 30-yr: +3 bps to 3.38%

10-Yr: unch… EUR/USD: 1.1502… USD/JPY: 112.54…

08:27AM ET

Yields Climb

  • European debt trades on a mostly lower note with Greek, Italian, and Spanish issues showing relative weakness. The European Commission has demanded a clarification from Italy regarding its budget for 2019, but this was widely-expected. However, the European Commission might have to make another inquiry of this sort, considering Spain is also expected to increase its deficit target for 2019. Spain sold 5- and 10-yr debt to solid demand while France offered 3- and 5-yr paper. On a separate note, the November Brexit summit has been cancelled due to insufficient progress.
  • European Economic Data:
    • Germany's September Wholesale Price Index +0.4% month-over-month, as expected (last 0.3%); +3.5% year-over-year (last 3.8%)
    • UK's September Retail Sales -0.8% month-over-month (expected -0.4%: last 0.4%); +3.0% year-over-year (expected 3.6%; last 3.4%). September Core Retail Sales -0.8% month-over-month (expected -0.4%; last 0.5%); +3.2% year-over-year (expected 3.7%; last 3.6%)
    • Swiss September trade surplus CHF2.43 billion (expected surplus of CHF2.45 billion; last surplus of CHF2.08 billion)
  • Yield Check:
    • France, 10-yr OAT: +1 bp to 0.83%
    • Germany, 10-yr bund: UNCH at 0.47%
    • Greece, 10-yr note: +14 bps to 4.44%
    • Italy, 10-yr BTP: +5 bps to 3.60%
    • Portugal, 10-yr PGB: +2 bps to 1.97%
    • Spain, 10-yr ODE: +4 bps to 1.70%
    • U.K., 10-yr gilt: +1 bp to 1.58%

10-Yr: -6/32… EUR/USD: 1.1506… USD/JPY: 112.51…

08:12AM ET

Treasuries Face Continued Pressure

  • U.S. Treasuries are on track for a lower start. Treasury futures continued retreating after yesterday's cash close, but the selling abated once Treasuries reached levels from last Wednesday. Treasury futures remained near their evening lows during the Asian session, seeing some modest buying in recent trade. The U.S. Treasury released its currency report, and while the report did not label China as a currency manipulator, it did acknowledge China's lack of transparency. China remained on the Treasury Department's watchlist, alongside South Korea, Germany, India, Japan, and Switzerland. The Chinese yuan has dipped to a fresh 2018 low (6.937) while the U.S. Dollar Index trades little changed at 95.60.
  • Yield Check:
    • 2-yr: +2 bps to 2.90%
    • 5-yr: +2 bps to 3.06%
    • 10-yr: +3 bps to 3.21%
    • 30-yr: +2 bps to 3.37%
  • News:
    • The Bank of Korea left its repurchase rate unchanged at 1.50%, but two policymakers dissented. Central bank governor Lee Ju-yeol said it is time to pay attention to risks to financial stability.
    • China's September FDI +2.9% (last 2.3%)
    • Japan's September trade deficit JPY240 billion (expected deficit of JPY340 billion; last deficit of JPY190 billion). September Imports +7.0% year-over-year (expected 13.7%; last 15.3%) and September Exports -1.2% year-over-year (expected 1.9%; last 6.6%)
    • Australia's September Employment Change 5,600 (expected 15,200; last 44,600) and Full Employment Change 20,300 (last 35,200). September Participation Rate 65.4% (expected 65.7%; last 65.7%) and Unemployment Rate 5.0% (expected 5.3%; last 5.3%)
  • Data out Today:
    • Weekly Initial Claims (Briefing.com consensus 212K; prior 214K), Continuing Claims (prior 1660K), and October Philadelphia Fed (Briefing.com consensus 20.0; prior 22.9) at 8:30 ET
    • September Leading Indicators (Briefing.com consensus 0.5%; prior 0.4%) at 10:00 ET
    • Weekly natural gas inventories (prior +90 bcf) at 10:30 ET
  • Fed Speakers:
    • St. Louis Fed President (alternate voter) James Bullard at 9:00 ET
    • Governor (FOMC voter) Randal Quarles at 11:30 ET

10-Yr: -5/32… EUR/USD: 1.1507… USD/JPY: 112.47…

03:10PM ET

Morning Gains Surrendered

  • U.S. Treasuries ended Wednesday on a modestly lower note after failing to extend their morning gains. The trading day started near yesterday's closing levels with longer tenors showing some slight strength. Longer-dated Treasuries advanced to fresh session highs after the release of a disappointing Housing Starts (actual 1201K; Briefing.com consensus 1221K) and Building Permits (actual 1241K; Briefing.com consensus 1273K) report for September. Mid-morning action saw 2s and 5s join the advance, but the entire complex slipped to fresh lows after a brief rise above morning highs. The pullback from highs was not very aggressive, as Treasuries found support near yesterday's lows. The afternoon release of September FOMC Minutes took place just as Treasuries hit their lowest levels of the day. The Minutes showed that policymakers are ready to increase the fed funds rate range past the neutral policy rate. The Minutes acknowledged the presence of strains on emerging market economies, but did not show significant concern over this development. Near-term rate hike expectations edged up after the release, with the implied likelihood of a hike in December increasing to 83.0% from 79.7% just before the release. However, the implied probability of another rate increase in March declined to 49.8% from 50.2% seen just before the Minutes crossed.
  • Yield Check:
    • 2-yr: +2 bps to 2.88%
    • 5-yr: +2 bps to 3.04%
    • 10-yr: +2 bps to 3.18%
    • 30-yr: +2 bps to 3.35%
  • News:
    • Last evening's release of net Long-Term TIC flows for August showed that private investors acquired $55.20 billion worth of U.S. Treasury bonds and notes in August while official accounts increased their Treasury bond and note holdings by $7.90 billion. China lowered its holdings of U.S. Treasuries for the third consecutive month, with sales totaling $18 billion during that stretch.
    • Housing starts declined 5.3% in September to a seasonally adjusted annual rate of 1.201 million units (Briefing.com consensus 1221K), with single-family starts down 0.9% to 871,000. Building permits were down 0.6% to a seasonally adjusted annual rate of 1.241 million (Briefing.com consensus 1273K), although that was owed to a 9.3% decline in permits for buildings with five units or more.
      • The key takeaway from the September Housing Starts and Building Permits report is that the supply of new homes isn't picking up fast enough to meet the demand for new homes at more affordable price points. Accordingly, overall home sales activity will continue to be curtailed by affordability constraints
  • Commodities:
    • WTI crude: -3.0% to $69.75/bbl
    • Gold: -0.3% to $1227.20/ozt
    • Copper: UNCH at $2.78/lb
  • Currencies:
    • EUR/USD: -0.5% to 1.1510
    • USD/JPY: +0.2% to 112.47
    • USD/CNH: +0.2% to 6.925
  • A Look to Thursday:
    • Weekly Initial Claims (Briefing.com consensus 212K; prior 214K), Continuing Claims (prior 1660K), and October Philadelphia Fed Survey (Briefing.com consensus 20.0; prior 22.9) at 8:30 ET
    • September Leading Indicators (Briefing.com consensus 0.5%; prior 0.4%) at 10:00 ET
    • Weekly natural gas inventories (prior +90 bcf) at 10:30 ET
  • Fed Speakers:
    • St. Louis Fed President (alternate voter) James Bullard at 9:00 ET
    • Governor (FOMC voter) Randal Quarles at 11:30 ET

10-Yr: -5/32… EUR/USD: 1.1510… USD/JPY: 112.47…

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