Updated: 02-27-2015

The Market at 02:28PM ET
10-Year: +3/32…2.017…
EUR/USD: 1.1199…
USD/JPY: 119.72…

Moving the Market

- Q4 GDP -- Second Estimate: Actual 2.2%, Briefing.com consensus 2.1%, prior 2.6%

- Q4 GDP Deflator -- Second Estimate: Actual 0.1%, Briefing.com consensus 0.0%, prior 0.0%

- February Chicago PMI: Actual 45.8, Briefing.com consensus 57.0, prior 59.4

- February Michigan Sentiment -- Final: Actual 95.4, Briefing.com consensus 94.0, prior 93.6

- January Pending Homes Sales: Actual 1.7%, Briefing.com consensus 2.4%, prior -1.5% revised from -3.7%

- Cleveland Fed President Mester (non-FOMC voter), New York Fed President Dudley (FOMC voter) and Federal Reserve Vice Chair Stanley Fischer (FOMC voter) participate in the U.S. Monetary Policy Forum 2015 Annual Conference

- NY Fed's Dudley says that the risk of raising rates early outweigh raising rates late; inflation to remain weak; does not see sustained period of stagnation

02:28PM ET
Major Currency Pairs Range-Bound:

  • After Thursday's big U.S. Dollar rally, the major currency pairs went through a day of consolidation
  • The U.S. Dollar Index briefly pulled back to 94.90 after the Q4 GDP second revision release (Actual 2.2%, Briefing.com consensus 2.1%), and then again to 95.01 after the awful Chicago PMI number (Actual 45.8, Briefing.com consensus 57.0), but was down only 7 pips (-0.7%) on the day to 95.22 at the time of writing
    • Traders should be looking for follow-through on Monday. Even today's consolidation is a little bit suspect, given the strength of the bullish trend
  •  EUR/USD traded down 7 pips (-0.07%) to $1.1202
  • $/JPY ended up 47 pips (+0.39%) to 119.71, following through from yesterday's move
  • The commodity currencies, Aussie, Kiwi, and the Canadian Dollar seem to have stalled out following their rallies off of Yellen's dovish remarks before the Senate Banking Committee on Tuesday
    • AUD/USD: +3 pips (+0.04%) to $0.7816
    • NZD/USD: +21 pips (+0.27%) to $0.7567 (The Kiwi hsa been the strongest vs. the U.S. Dollar since Yellen's remarks)
    • USD/CAD: +14 pips (+0.11%) to 1.2508
  • GBP/USD made back some of the ground it lost yesterday, trading up 21 pips (+0.14%) to $1.5445

10-Yr: +3/32… EUR/USD: 1.1199… USD/JPY: 119.72…

11:12AM ET
Dollar Boosted by Better than Expected GDP Revision- The Dollar Index continues to hold 95 but is running into resistance at the multi-month highs of 95.48 set back on January 23. The greenback was boosted by a better than expected Q4 GDP revision and slightly higher Deflator prices. But the early excitement has cooled after a big miss in the Chicago PMI. Markets prepare for a busy week of data as we kick off March. Of note: Income & Spending, PCE, ISM Index (Mon); Vehicle Sales (Tue); ADP, Beige Book (Wed); Unit Labor Costs, Factory Orders (Thu); Jobs Report (Fri). 

  • The euro was hit on the dollar run as it dove below 1.12. The single currency would dip to the 1.1180 level before finally finding support. It is now trading at 1.1220 as it attempts to recoup some losses. Economic data from the region was mixed as Germany saw a better than expected CPI number but this was offset a little by a miss in France and Spain. Greece remains a concerns as rumors over a lack of funding and bank deposit runs continue to weight on sentiment. 
  • The pound is seeing a steady run higher off of the 1.54 support level. Sterling is seeing a small run of consolidation in this 1.54-1.55 area as investors weigh the potential for a rate hike against inflation worries in the region.
  • The yen is seeing some selling pressure against the dollar as it slips to the low end of 119 and prepares to test 120 for support. The week low of 119.83 will set up as a key level for traders as we see the selling in the yen turn aggressive. It was a buys night of economic news for Japan. Retail Sales, National CPI, Unemployment Rate and Household Spending all came in light but Industrial Production was a surprise to the upside.

10-Yr: +04/32… EUR/USD: 1.1215… USD/JPY: 119.57…

10:46AM ET
Treasuries Sell Off Sharply but Rebound:

  • Treasuries were broadly lower on Friday morning, following what could easily have been construed as a bullish series of economic data
    • Chicago PMI for February, released at 08:45 ET, came in at 45.8 versus a Briefing.com consensus of 58.0. The reading for January was 59.4
      • A reading of less than 50 indicates a contraction in business activity
      • According to the report, "The West Coast port strike and the harsh winter probably had a negative impact in February, although it is difficult to gauge the magnitude."
      • According to Briefing.com chief economist, Jeffrey Rosen, "Readings throughout the report were abysmal, and every index, with the exception of supplier deliveries (58.3 from 54.9), contracted in Februrary
    • Fourth Quarter GDP- Second Estimate 2.2% vs Briefing.com consensus of 2.1%; Third Quarter was 2.6%
    • Fourth Quarter GBP- Deflator Second Estimate 0.1% vs Briefing.com consensus of 0.0%; Third Quarter was 0.0%
      • There were significant upward revisions to all of the components of nonresidential investment. Spending on structures was revised up to 5.0% from 2.6%, equipment investment was revised to 0.9% from -1.9%, and intellectual property product investment was revised to 10.9% from 7.4%. In all, the upward revisions to nonresidential investment added an additional 0.4 percentage points to GDP growth in the second estimate. 
    • Consumer Sentiment revised higher to 95.4 in the final February reading from 93.6 in the preliminary report. The Briefing.com Consensus expected the index to be revised up to 94.0. 
  • Fed Speak
    • NY Fed's Dudley says that the risk of raising rates early outweigh raising rates late; inflation to remain weak; does not see sustained period of stagnation
  • Yield check:
    • 2-yr: -2 bps to 0.63%
    • 5-yr: -3 bps to 1.51%
    • 10-yr: -2 bps to 2.01%
    • 30-yr: 02 bps to 2.61%

10-Yr: +6/32… EUR/USD: 1.1217… USD/JPY: 119.35…

09:39AM ET
Modest Gains For Treasuries:

  • Treasury yields declined across the curve at the U.S. equity open
  • The initial reaction to the GDP data was selling, but the bulls found their footing after a difficult Thursday session
  • Yield check: 
    • 2-yr: -2 bp to 0.64%
    • 5-yr: -2 bps to 1.52%
    • 10-yr: -1 bps to 2.02%
    • 30-yr: -2 bps to 2.62%
  • Goldman Sachs has gone tactically bullish on U.S. credit, according to Bloomberg News
    • Their chief credit strategist, Charles Himmelberg, said that growth is in a "sweet spot" for buyers of credit. Investors are not concerned about defaults, but also not looking for more risk in equities
  • At 09:45 ET, the February Chicago PMI will be released 

10-Yr: +3/32… EUR/USD: 1.1180… USD/JPY: 119.46…

09:02AM ET
GDP Growth Estimate for Q4 Revised Down to 2.2%:

  • Consensus expectations were for a revision down to 2.1%
  • Treasuries sold off immediately following the release, but quickly recovered to trade around pre-announcement levels

Smaller Inventory Growth Results in Downward Revisions to Q4 2014 GDP
  • Fourth quarter GDP was revised down to 2.2% in the second estimate from 2.6% in the advance estimate. GDP increased 5.0% in Q3 2014. The Briefing.com Consensus expected Q4 2014 GDP to be revised down to 2.1%.
  • Despite the downward revision, the GDP report actually reveals slightly better economic trends in the second estimate. Nearly all of the revision was the result of weaker inventory growth - $88.4 bln vs. $113.1 bln in the advance release. Excluding inventories, real final sales were revised up to 2.1% from an originally reported 1.8%.
  • There were significant upward revisions to all of the components of nonresidential investment. Spending on structures was revised up to 5.0% from 2.6%, equipment investment was revised to 0.9% from -1.9%, and intellectual property product investment was revised to 10.9% from 7.4%. In all, the upward revisions to nonresidential investment added an additional 0.4 percentage points to GDP growth in the second estimate.
  • Besides nonresidential investment, the only other GDP component that was revised higher was government spending, which declined 1.8% in the second estimate versus a 2.2% decline in the advance estimate. Federal government spending was unchanged while state and local spending was revised up to 2.0% from 1.3%.
  • Nonresidential investment spending was revised down to 3.4% from 4.1%, but the contribution to GDP growth was virtually unchanged. 
  • Personal consumption expenditures were revised down to 4.2% from 4.3%. The revision was due to slightly weaker goods spending, which offset a modest upward revision to services demand.
  • The net export deficit was revised up to $476.4 bln in Q4 2014 from an originally reported $471.5 bln. The larger deficit reduced GDP by another 0.1 percentage points.





10-Yr: unch… EUR/USD: 1.1225… USD/JPY: 119.3…

08:12AM ET
Profit-Taking in European Core:

  • German and French 10-year yields rose today, after sharp declines yesterday, with the selling encouraged by better-than-expected economic data 
    • Italian CPI for February was 0.3% m/m, versus expectations of 0.1%
    • Spanish CPI for February also beat expectations (-1.1% y/y, versus -1.5% expected)
    • French Consumer spending for January grew 0.6% m/m, versus -0.5% expected
    • German CPI rose 0.9% m/m in February, versus 0.7% expected
  • While Spanish, Italian, and Irish 10-yr yields declined, Greece's 10-yr rose 12 basis points to 9.2%. The optimism surrounding Greece's 4-month extension seems to extend only as far as the issue of contagion. Greece's debt is still priced for restructuring, while the rest of the PIIGS (Portugal, Ireland, Italy, Greece, Spain) see their 10-year sovereign debt trading below 2%
  • Yield check:
    • France, 10-yr OAT: +2 bps to 0.60%
    • Germany, 10-yr Bund: +3 bps to 0.29%
    • Greece, 10-yr note: +12 bps to 9.2%
    • Ireland, 10-yr note: unch at 0.88%
    • Italy, 10-yr note: -3 bps to 1.31%
    • Portugal, 10-yr note: -2 bps to 1.84%
    • Spain, 10-yr Bono: -2 bps to 1.26%
    • U.K., 10-yr Gilt: +4 bps to 1.78%

10-Yr: +2/32… EUR/USD: 1.1245… USD/JPY: 119.27…

07:22AM ET
Treasuries Lower to Flat Overnight:

  • Treasury prices fell and yields rose overnight but have recovered some this morning, as the prices of 2's, 5's, 10's, and bonds all tested their lows of yesterday afternoon. The markets are awaiting the second revision to Q4 GDP this morning. The consensus calls for annualized growth of 2.1%. Two FOMC voters are also speaking at the U.S. Monetary Policy Forum's Annual Conference
  • Yield check:
    • 2-yr: unch at 0.65%
    • 5-yr: unch at 1.54%
    • 10-yr: +1 bp to 2.04%
    • 30-yr: -1 bp to 2.63%
  • International News:
    • European data came in slightly better than expected, and the German and French 10-yr notes gave back some of their gains from yesterday
      • Italian CPI for February was 0.3% m/m, versus expectations of 0.1%
      • Spanish CPI for February also beat expectations (-1.1% y/y, versus -1.5% expected)
      • French Consumer spending for January grew 0.6% m/m, versus -0.5% expected
      • German CPI is due out at 08:00 ET, with the market expecting 0.7% m/m
      • Yield check:
        • France, 10-yr OAT: +2 bps to 0.59%
        • Germany, 10-yr Bund: +3 bps to 0.29%
        • Greece, 10-yr note: +12 bps to 9.2%
        • Italy, 10-yr note: -2 bps to 1.33%
        • Spain, 10-yr Bono: -1 bp to 1.26%
        • U.K., 10-yr Gilt: +4 bps to 1.78%
    • Indian equities rallied sharply, with investors expecting that tomorrow's government budget will include structural reforms and fiscal stimulus for India's economy. The Nifty Fifty rallied 1.6%
    • Japanese stocks rallied again, taking the Nikkei 225 to another fresh 15-year high, up 12 points to 18,798
  • Data Out Today:
    • Q4 GDP -- Second Estimate (08:30 ET)
    • February Chicago PMI (09:45 ET)
    • February Michigan Sentiment -- Final (10:00 ET)
    • January Pending Home Sales (10:00 ET)
  • Fed-Speak:
    • Cleveland Fed President Mester (non-FOMC voter), New York Fed President Dudley (FOMC voter) and Federal Reserve Vice Chair Stanley Fischer (FOMC voter) participate in the U.S. Monetary Policy Forum 2015 Annual Conference  

10-Yr: -3/32… EUR/USD: 1.1221… USD/JPY: 119.37…

03:10PM ET

Treasuries Lose, With 5-Year Note Leading the Way:
  • Treasuries reversed overnight gains today, selling hard after the 08:30 ET release of CPI, durable goods orders, and weekly jobless claims. A rally following the $29 billion 7-year note auction at 13:00 ET proved to be short-lived. The losses came at all maturities, although the 2-yr and 5-yr were weaker in the morning with the curve steepening in the afternoon
  • Yield check 
    • 2-yr: +4 bps to 0.65%
    • 5-yr: +6 bps to 1.52%
    • 10-yr: +4 bps to 2.01%
    • 30-yr: +4 bps to 2.61%
  • There was no obvious catalyst for today's selling in the economic data, except possibly in the Durable Goods Orders report
    • The Treasury selling began immediately after the 08:30 data release. The market may have been looking for a down-side surprise in the economic data that did not come
      • January CPI came out one tenth of a percentage point lower than expected, but core-CPI beat the consensus expectation by the same amount
        • Actual -0.7%, Briefing.com consensus -0.6%, prior -0.3% 
        • According to Briefing.com chief economist, Jeffrey Rosen, "As expected, a large drop in gasoline prices was the primary catalyst for the decline in consumer prices. Gasoline costs fell 18.7% in January after declining 9.2% in December."
      • Initial jobless claims came out slightly higher than expected
        • Actual 313K, Briefing.com consensus 295K, prior 282K 
        • According to Briefing.com chief economist, Jeffrey Rosen: "There have been several anecdotal reports from the energy sector that mass layoffs are coming in the near future. So far, those layoffs have not shown up in the level of initial claims....Despite the increase, the initial claims still support monthly payroll growth over 200K."
      • Durable Goods Orders for January
        • Actual 2.8%, Briefing.com consensus 1.7%, prior -3.7% 
        • Most of the increase in orders came from seasonal adjustments in the aircraft industry
    • The $29 billion 7-year note auction was met with tepid demand 
      • High yield: 1.834%
      • Bid-to-cover ratio: 2.37 versus a prior 12-auction average of 2.54
      • Indirect bid: 52.3% versus a prior 12-auction average of 47.3
      • Direct bid: 10.5%
      • Tail: 0.8 bps
  • Fed Speak:
    • Cleveland Fed President Mester (non-FOMC voter) said on CNBC that she expects 3% GDP growth in 2015 and inflation going back up to 2% by the end of 2015
      • She also said that taking the word "patient" out of the FOMC statement does mean that a rate hike is imminent. She reiterated that the Fed is data-dependent and can't say if she would vote for a rate hike in June
    • Atlanta Fed President Lockhart had been due to speak but inclement weather led to the cancellation of his speech
  • Commodities:
    • WTI Crude fell $2.44/bbl (-4.79%) to $48.55/bbl
      • The U.S. Dollar rally certainly contributed something to the sell-off, but the supply data from yesterday was not encouraging for the bulls either
    • Copper rallied 4 cents to $2.69/lb.
    • Gold rallied $6.90 (0.57%) despite a very strong dollar to $1208.40/troy oz.
  • Currencies:
    • The major story in the currency market was the potential breakout of the U.S. Dollar Index. It rose 1.08 points or 1.15% to 95.29
    • EUR/USD: -165 pips (-1.45%) to $1.1196
    • $/Yen: +55 pips (+0.46%) to 119.42
  • The Day Ahead 
    • Q4 GDP -- Second Estimate (08:30 ET)
    • February Chicago PMI (09:45 ET)
    • February Michigan Sentiment -- Final (10:00 ET)
    • January Pending Home Sales (10:00 ET)
    • Cleveland Fed President Mester (non-FOMC voter), New York Fed President Dudley (FOMC voter) and Federal Reserve Vice Chair Stanley Fischer (FOMC voter) participate in the U.S. Monetary Policy Forum 2015 Annual Conference

10-Yr: -12/32… EUR/USD: 1.1199… USD/JPY: 119.41…

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