Updated: 01-19-2017

The Market at 11:30AM ET
10-Year: -11/32…2.47…
EUR/USD: 1.0635…
USD/JPY: 115.18…

Moving the Market

  • ECB Rate Decision: Rates unchanged, as expected; Marginal Lending facility 0.25%, Main refinancing operations 0.00%, Deposit facility -0.40%
    • The Governing Council continues to expect the key ECB interest rates to remain at present or lower levels for an extended period of time, and well past the horizon of the net asset purchases
  • Initial Jobless Claims for the week ending 1/14: Actual 234K, Briefing.com consensus 252K, Prior 247K
  • Continuing Jobless Claims for the week ending 1/7: Actual 2046K, Prior 2087K
  • December Housing Starts: Actual 1226K, Briefing.com consensus 1193K, Prior 1102K (revised from 1090K)
    • Building Permits: Actual 1210K, Briefing.com consensus 1217K, Prior 1212K (revised from 1201K)
  • January Philadelphia Fed: Actual 23.6K, Briefing.com consensus 15.3, Prior 21.5
  • Senate Finance Committee confirmation hearings for Steven Mnuchin (ongoing)
  • San Francisco Fed President Williams (non-FOMC voter) (10:00 ET)
  • Natural Gas Inventories for the week ending 1/14: Actual -243 bcf, Expected -231 bcf, Prior -151 bcf
  • Crude Inventories for the week ending 1/14: Actual +2.3 mln barrels, Expected -0.34 mln, Prior +4.1 mln
  • U.K. Prime Minister May speaks on Bloomberg (ongoing)
  • $13 bln 10-year TIPS auction (results at 13:00 ET)
  • Fed Chair Yellen (FOMC voter) (20:00 ET)

11:30AM ET

TIPS Auction Coming Up

  • The U.S. Treasury market remains lower today but is trading up from its worst levels after two days of fairly heavy selling pressure. The chatter this morning was that a large bank portfolio was sold over that time and that was part of why the belly of the yield curve has been so weak. Still on deck today are the $13 bln 10-yaer TIPS auction and remarks from Fed Chair Yellen this evening. Treasury Secretary Nominee Mnuchin continues to answer questions in front of the Senate Finance Committee
  • The S&P 500 is down 0.14% to 2,268.7 and WTI crude has trimmed its gain to 0.57% at $51.37/bbl.
  • The U.S. Dollar Index is adding 0.44% at 101.37 and gold is down 0.87% to $1,201.5/troy oz.
  • China's holdings of U.S. Treasuries dropped by $66.4 bln in November 2016 to total $1.05 tln
    • The FT's Alphaville blog had a good post on Chinese capital flight on Wednesday
    • According to Reuters, Chinese capital controls are encouraging state-owned enterprises (SOEs) to raise more expensive and riskier debt offshore
      • An underwriter who helps Chinese firms issue dollar bonds said state-owned enterprises (SOEs) were keen to issue dollar bonds partly because "the central government is encouraging them to bring dollars back to China, and SOEs are not very sensitive to borrowing costs".
      • When the companies repatriate new dollar funding into China, the transaction (selling dollars and buying yuan) helps the authorities' support the currency
      • USD/CNY: +0.46% to 6.871
  • Yield Check:
    • 2-yr: +2 bps to 1.24%
    • 5-yr: +2 bps to 1.97%
    • 10-yr: +4 bps to 2.47%
    • 30-yr: +4 bps to 3.05%

10-Yr: -11/32… EUR/USD: 1.0635… USD/JPY: 115.18…

10:33AM ET

Treasuries Sit on Lows

  • U.S. Treasuries are taking moderate but significant losses today as former Goldman partner Steven Mnuchin takes questions from the Senate Finance Committee for his confirmation vote for Treasury secretary. Mnuchin has moved Treasuries before when he said that he would consider issuing debt with maturities longer than 30 years. The S&P 500 is down 0.11% to 2,269.5 and the U.S. Dollar Index is up 0.64% to 101.58. The index traded up to 103.81 on the first trading day of 2017, a one-decade high
  • WTI crude is up 1.29% to $51.74/bbl. ahead of the EIA crude inventory data
  • Gold is down 1.14% to $1,198.3/troy oz.
  • Natural gas is down 0.30% to $3.284/mbtu. after last weeks storage change was reported to be -243 bcf
  • Data Recap:
    • Weekly Initial Claims 234K vs Briefing.com consensus of 252K; Last Week was revised to 249K from 247K
      • The key takeaway from the report is that claims report covers the period in which the household and establishment survey for the Employment Situation report are conducted, so expectations for January's nonfarm payroll growth should be revised higher following this positive surprise for initial claims
    • January Philadelphia Fed 23.6 vs Briefing.com consensus of 15.3; December was revised to 19.7 from 21.5
      • The index for new orders increased to 26.0 from 13.9 while the prices paid index increased 4.4 points to 32.5
      • The diffusion index for future general activity increased from 48.7 to 56.6, which is the highest reading since August 2014
      • The capex index fell to 21.9 from 33.8
    • December housing starts increased 11.3% to a seasonally adjusted annual rate of 1.226 million (Briefing.com consensus 1.193 million). Building permits dipped 0.2% to a seasonally adjusted annual rate of 1.210 million (Briefing.com consensus 1.217 million).
    • The key takeaway from the report is that residential construction will be a positive input to Q4 GDP forecasts. The Q4 average for privately-owned housing units under construction was 1.8% above the Q4 average
      • Multi-unit starts rose 57.3%. Single-family starts were down 4.0% in December.
      • Single-family starts were up 5.1% in the Northeast, down 9.9% in the Midwest, down 7.4% in the South, and up 6.0% in the West.
      • Single-family permit authorizations increased 4.7% to 817K, an encouraging leading indicator
      • The number of privately-owned housing units under construction increased by 1.1% to 1.054 million
  • The Atlanta Fed's GDPNow model forecast for Q4 real U.S. GDP growth was 2.8% today, unchanged from January 13
    • The forecast of Q4 real residential investment growth declined from 9.4% to 8.8% after this morning's new residential construction release
  • Yield Check:
    • 2-yr: +2 bps to 1.24%
    • 5-yr: +4 bps to 1.98%
    • 10-yr: +4 bps to 2.48%
    • 30-yr: +4 bps to 3.06%

10-Yr: -14/32… EUR/USD: 1.0599… USD/JPY: 115.32…

09:31AM ET

Draghi Shows No Signs of Complacency on Reflation

  • U.S. Treasuries are holding lower this morning and the U.S. Dollar Index is up 0.55% to 101.49 this morning after the Philly Fed and housing starts data both topped economists' expectations. The S&P 500 is set to open up 0.03% to 2,272.6 and WTI crude is 1.14% higher at $51.66/bbl. Gold is losing 1.05% to $1,199.5/troy oz.
  • Yield Check:
    • 2-yr: +1 bp to 1.23%
    • 5-yr: +2 bps to 1.96%
    • 10-yr: +3 bps to 2.46%
    • 30-yr: +2 bps to 3.03%
  • The technical situations for the 5, 10, and 30-year Treasury yields are quite similar. All three yields have pulled back from their mid-December highs to test their 23.6% Fibonacci retracements and 50-day moving averages. Five of those six tests have been successful (the 30-year yield moved a full eight basis points below its 50-day SMA at one point although the yield has since moved back above that level). Fed Chair Yellen's remarks on Wednesday and ECB President Draghi's press conference this morning have sent all three yields (5, 10, and 30) up to their 21-day moving averages. We said on Wednesday that we do not expect this recent jump in yields to extend to the mid-December highs in short order and that we would see the higher probability being for some prolonged consolidation in this mid-December to mid-January range. We still like the consolidation idea but obviously Treasury yields have moved higher with today's decline in prices. The 21-day moving averages (1.945%, 2.451%, and 3.04%) are all coming into play today and are pointing lower but we wouldn't put too much stock in those. Moving averages are most useful in trending markets and if we are actually going to see more consolidation, traders could get whipsawed by using the moving averages as buy/sell signals
  • 5-Year Treasury Yield (Daily):

  • 10-Year Treasury Yield (Daily):

  • 30-Year Treasury Yield (Daily):

10-Yr: -9/32… EUR/USD: 1.0619… USD/JPY: 115.14…

08:57AM ET

Treasuries Search for Buyers as Philly Fed and Housing Starts Top Forecasts

  • U.S. Treasuries are trading modestly lower this morning after U.S. housing starts were reported to have exceeded forecasts in December. The S&P 500 is set to open down 0.06% to 2,270.3 and the U.S. Dollar Index is rising 0.39% to 101.32. Gold is down 0.83% to $1,202.1/troy oz. and WTI crude is up 1.12% to $51.65/bbl.
  • Housing starts numbered 1226K last month, exceeding the Briefing.com consensus of 1193K. November's number was revised up to 1102K from 1090K
    • Building permits totaled 1210K in December, falling short of the Briefing.com consensus for 1217K permits. November saw 1212K new building permits, revised up from 1201K
  • U.S. initial jobless claims fell to 234K for the week ending January 14 from the prior reading of 247K. The Briefing.com consensus was 252K
    • Continuing claims fell to 2046K from 2093K
  • The Philadelphia Fed's manufacturing activity survey showed that the mid-Atlantic factory sector is growing at its fastest pace in two years. The index rose to 23.6 for January from 19.7K in December, beating the Briefing.com consensus for a dip to 15.3
  • ECB President Draghi's press conference is ongoing. He already said that the recent jump in year-on-year eurozone inflation to 1.1% was due to "base effects" and that "there are no signs yet of a convincing upward trend in inflation"
    • The details on ECB asset purchases of securities yielding less than the deposit rate (-0.40%) will be released at 09:30 ET
    • Draghi said that balance sheet repair for nonfinancial companies has progressed markedly in the past few months and borrowing conditions for small and medium enterprises have improved
  • Yield Check:
    • 2-yr: +1 bp to 1.23%
    • 5-yr: +2 bps to 1.96%
    • 10-yr: +2 bps to 2.45%
    • 30-yr: +1 bp to 3.02%

10-Yr: -7/32… EUR/USD: 1.0624… USD/JPY: 114.92…

08:31AM ET

ECB Leaves Rates on Hold

  • Eurozone sovereign debt yields are moving higher this morning after the ECB's Governing Council voted to keep monetary policy on hold. The monetary policy statement reflected an unwavering commitment on the part of the Governing Council to revive inflation. The statement said that short-term rates would not be moved higher until the asset purchases are completed, which will be at the end of December 2017 at the earliest. ECB President Draghi will give a press conference at 08:30 ET. The German 10-year Bund yield has not closed above 0.40% since January 2016 (0.38% currently) and the technical bias for Bund yields remains higher 
  • The European Central Bank's Governing Council elected to maintain monetary policy on its current course, as expected
    • The deposit rate remains at -0.40% and the asset purchase program will continue to buy EUR80 bln/month of public and private sector securities until April, when it will scale down purchases to EUR60 bln/month
    • The accompanying statement said that the ECB's policy rates will not be hiked until the asset purchase program is completed in December 2017 (at the earliest)
  • New Issuance:
    • France sold EUR4.85 bln of OATs maturing on 2/25/2020 at an average yield of -0.43% with a bid-to-cover ratio of 1.58
    • France sold EUR3.15 bln of OATs maturing on 5/25/2022 at an average yield of -0.04% with a bid-to-cover ratio of 1.64
    • Spain sold EUR655 mln of 3-year Bonos at a weighted average yield of of -0.234% and bid-to-cover of 3.98
    • Spain sold EUR3.2 bln of 5-year Bonos at a weighted average yield of 0.399% and bid-to-cover of 1.36
    • Spain reopened the ODE maturing on 10/31/2023 for EUR966 mln at a weighted average yield of 0.769% with a bid-to-cover of 2.24 
  • European Economic Data:
    • The eurozone's current account surplus increased more than expected in November to a seasonally adjusted EUR36.1 bln from EUR28.4 bln in October. November's surplus was EUR300 mln short of the post-crisis high
    • Switzerland's producer price index rose 0.2% m/m in December (0.0% y/y), meeting forecasts and ticking up from November's 0.1% PPI inflation
    • The U.K.'s RICS House Price Balance unexpectedly fell to 24% in December from 29% in November, indicating that fewer surveyors are seeing a rise in home prices although more see higher prices than lower prices
  • Yield Check:
    • France, 10-yr OAT: +2 bps to 0.85%
    • Germany, 10-yr Bund: +2 bps to 0.38% 
    • Greece, 10-yr note: -4 bps to 7.01%
    • Italy, 10-yr BTP: +4 bps to 1.98% 
    • Portugal, 10-yr PGB: unch at 3.82% 
    • Spain, 10-yr ODE: +7 bps to 1.47%
    • U.K., 10-yr Gilt: +4 bps to 1.38%

10-Yr: -4/32… EUR/USD: 1.0667… USD/JPY: 114.70…

07:40AM ET

Treasuries Slip Ahead of ECB Decision

  • U.S. Treasuries have failed to recover Wednesday afternoon's post-Yellen-speech losses this morning and in fact have even extend them a bit. Fed Chair Yellen said yesterday afternoon that most of her colleagues on the FOMC see a few rate hikes per year until the end of 2019, when the Fed funds rate should be close to 3%. While that forecast is subject to a litany of risk factors, the market interpreted her comments as hawkish and the technical bias for the Treasury complex was already lower so lower we went. Yellen is now assumed to have been one of the FOMC participants who had forecast three rate hikes back at the December FOMC meeting. The international economic data out overnight was limited although the eurozone's current account surplus neared a post-crisis high in November (EUR36.1 bln). The European Central Bank's Governing Council will release its monetary policy decision in just a few minutes. The major U.S. data points today are December housing starts and building permits. The S&P 500 is set to open down 0.11% to 2,269.3 and the U.S. Dollar Index is up 0.14% to 101.07. WTI crude is adding 1.1% to $51.64 ahead of the EIA crude inventory data and gold is off by 0.71% to $1,203.5/troy oz.
  • Yield Check:
    • 2-yr: +1 bp to 1.23%
    • 5-yr:  unch at 1.95%
    • 10-yr: +1 bp to 2.44% 
    • 30-yr: +1 bp to 3.02%
  • International News:
    • New Zealand's Business NZ PMI was unchnaged at 54.5 in December
      • Building consents fell 9.2% m/m in November, wiping out October's 2.0% increase
    • Australia's economy added 13.5K jobs in December, beating estimates but slowing from November's 37.1K reading
      • The unemployment rate unexpectedly ticked up to 5.8% from 5.7%
    • Switzerland's producer price index rose 0.2% m/m in December (0.0% y/y), meeting forecasts and ticking up from November's 0.1% PPI inflation
    • The U.K.'s RICS House Price Balance unexpectedly fell to 24% in December from 29% in November, indicating that fewer surveyors are seeing a rise in home prices although more see higher prices than lower prices
    • The eurozone's current account surplus increased more than expected in November to a seasonally adjusted EUR36.1 bln from EUR28.4 bln in October. November's surplus was EUR300 mln short of the post-crisis high
      • Spain's trade deficit narrowed to EUR1.25 bln in November from EUR1.8 bln in October
  • Data out Today:
    • ECB Rate Decision (07:45 ET)
    • Initial Jobless Claims for the week ending 1/14 and Continuing Jobless Claims for the week ending 1/7 (08:30 ET)
    • December Housing Starts and Building Permits (08:30 ET)
    • January Philadelphia Fed (08:30 ET)
    • Natural Gas Inventories for the week ending 1/14 (10:30 ET)
    • Crude Inventories for the week ending 1/14 (11:00 ET)
  • TIPS Auction:
    • $13 bln 10-year TIPS auction (results at 13:00 ET)
  • Fed Speakers:
    • San Francisco Fed President Williams (non-FOMC voter) (10:00 ET)
    • Fed Chair Yellen (FOMC voter) (20:00 ET)

10-Yr: -3/32… EUR/USD: 1.0666… USD/JPY: 114.66…

03:35PM ET

Treasuries Extend Losses on Yellen Remarks

  • U.S. Treasuries are nursing sharp losses today although CPI and industrial production data for December came out mostly in line with estimates. The undeniable fact is that the relief rally in Treasuries that began in mid-December lowered yields from the 5 to 30-year maturities by roughly 30 basis points and some of the faster money longs took money off of the table over the past four days. Fed Chair Yellen spoke this afternoon and said that she and most of her colleagues on the FOMC expected "a few" rate hikes per year through the end of 2019. If you take Yellen literally, "a few" is probably more than "a couple" and so likely three or more. Three hikes per year (of 25 basis points each) through the end of 2019 would put the Fed funds rate at 2.875% by that time. While there are many developments that could derail that forecast, the five year note yield is up by 10 basis points and that is steepening the yield curve sharply from the 1 to the 5-year maturity. We noted in our 10:59 ET comment that the 5-year yield's 50-day moving average was touched on Tuesday and traders appear to have taken that support level at face value. U.S. industrial production surprised on the upside in December but mostly due to higher utility output on cooler weather. The downward revision to November's change was also of greater magnitude than December's beat, so on balance the report disappointed for the whole fourth quarter. The S&P 500 is now up 0.04% to 2,268.7 and the U.S. Dollar Index is up 0.90% to 101.23
  • Yield Check:
    • 2-yr: +6 bps to 1.21%
    • 5-yr:  +10 bps to 1.92%
    • 10-yr: +9 bps to 2.41%
    • 30-yr: +6 bps to 3.00%
  • News:
    • The U.S. consumer price index rose 0.3% m/m in December (2.1% y/y), matching the Briefing.com consensus. November's growth was 0.2% m/m (1.7% y/y)
      • The core CPI was up 0.2% m/m in December (2.2% y/y), also matching the Briefing.com consensus. November's core CPI growth was 0.2% (2.1% y/y)
      • The growth was driven by housing and fuel costs   
    • U.S. industrial production grew by 0.8% m/m in December, beating the Briefing.com consensus for growth of 0.6%. November saw a decline of 0.7% (revised from -0.4%)
      • Manufacturing production, which strips out utilities and mining output from industrial production, was up just 0.2% m/m after falling 0.1% in November
      • Capacity utilization rose to 75.5% from a downwardly revised 74.9% in November. The Briefing.com consensus was 75.4%
    • Dallas Fed President Robert Kaplan, who votes on the FOMC this year, said today that he sees U.S. GDP growth of ~2.3% in 2017. That estimate does not factor in potential fiscal and regulatory changes in Washington. Kaplan went on to say that the strong U.S. dollar will be a headwind for U.S. inflation
    • The NAHB Housing Market Index fell to 67 for January from a downwardly revised 69 in December
    • The Fed's Beige Book of economic activity in the Fed's 12 districts since the end of November said that the economy expanded modestly during that period
      • District reports cited widespread difficulties in finding workers for skilled positions; several also noted problems recruiting for less-skilled jobs
      • Most districts said wage pressures had increased
    • Fed Chair Janet Yellen said today that the U.S. economy is "near maximum employment and inflation is moving toward our goal." She went on to say that rate hikes would be gradual and data-dependent
      • Yellen added that "I and most of my colleagues' were thinking in December that hiking rates 'a few times a year' would make sense through the end of 2019
      • Her comments sent the Treasury complex to session lows
  • Commodities:
    • WTI crude: -2.27% to $51.29/bbl.
    • Gold: -0.73% to $1,204.1/troy oz.
    • Copper: -0.44% to 2.6135/lb.
  • Currencies:
    • EUR/USD: -0.60% to 1.0640 
    • USD/JPY: +1.30% to 114.25
  • Data out Thursday:
    • Initial Jobless Claims for the week ending 1/14 and Continuing Jobless Claims for the week ending 1/7 (08:30 ET)
    • December Housing Starts and Building Permits (08:30 ET)
    • January Philadelphia Fed (08:30 ET)
    • Natural Gas Inventories for the week ending 1/14 (10:30 ET)
    • Crude Inventories for the week ending 1/14 (11:00 ET)
  • TIPS Auction:
    • $13 bln 10-year TIPS auction (results at 13:00 ET)
  • Fed Speakers:
    • San Francisco Fed President Williams (non-FOMC voter) (10:00 ET)
    • Fed Chair Yellen (FOMC voter) (20:00 ET)

10-Yr: -25/32… EUR/USD: 1.0640… USD/JPY: 114.25…

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