Updated: 08-23-2019

The Market at 03:27PM ET
10-Year: +21/32…1.528…
EUR/USD: 1.1146…
USD/JPY: 105.31…

Moving the Market

-- Treasuries and gold rally as conflict with China escalates

-- 10:00 ET: July New Home Sales (actual 635,000; Briefing.com consensus 645,000; prior 728,000)

-- 10:00 ET: Fed Chairman Jay Powell reiterates that the Fed will "act as appropriate to sustain the expansion" during his opening remarks at the Jackson Hole Symposium

03:27PM ET

Treasuries Approach August Highs as Conflict With China Escalates

  • U.S. Treasuries ended the week on a sharply higher note after reclaiming their overnight losses. Treasury futures followed yesterday's retreat with a bit more overnight weakness, which took place amid an improvement in risk tolerance in Asia and Europe. However, a rebound began taking shape ahead of the cash start, with Treasuries erasing the bulk of their losses after it was reported that China will impose retaliatory tariffs on imports from the U.S. on September 1 and December 15. Chinese officials threatened to retaliate after President Trump announced the latest round of tariffs, but today's report confirmed these plans. The 10:00 ET release of Fed Chairman Jay Powell's opening remarks to the attendees of the Jackson Hole Symposium did not generate much excitement, considering the Fed Chairman essentially reiterated statements that have been made in the past. However, President Trump's response to the lack of dovish signals from the Fed Chairman sent Treasuries and gold to fresh highs while pressuring equities. Using his favorite medium of communication, the president first tweeted, "who is our bigger enemy, Jay Powell or Chairman Xi?" then followed up with, "Our great American companies are hereby ordered to immediately start looking for an alternative to China, including bringing your companies HOME and making your products in the USA." While President Trump does not have the power to simply order a change, his comments suggest that he will look for legal means to accomplish his goal. It is worth noting that President Trump called Xi Jinping, "Chairman Xi", which is the Chinese leader's correct title. However, in the past, President Trump used the title "President" when referring to China's leader. The change could be a sign that the U.S. will begin highlighting China's illiberal tendencies as the conflict escalates further. The U.S. Dollar Index fell 0.5% to 97.65, surrendering 0.5% for the week.
  • Yield Check:
    • 2-yr: -7 bps to 1.53%
    • 3-yr: -8 bps to 1.45%
    • 5-yr: -8 bps to 1.41%
    • 10-yr: -8 bps to 1.53%
    • 30-yr: -8 bps to 2.03%
  • News:
    • Bank of England Governor, Mark Carney, called for a reserve digital currency during his speech at the Jackson Hole Symposium.
    • South Korea's Finance Ministry maintained South Korea's growth forecast between at 2.4%-2.5% but acknowledged that meeting the forecast has become more difficult.
    • The People's Bank of China fixed the yuan at 7.0572 per dollar, making for the weakest fix since March 2008.
    • Italy's President, Sergio Matterella, will confer with party leaders early next week to see if a new coalition government can be formed. An earlier report indicated that M5S remains hopeful that it can form a coalition with PD.
  • Today's Data:
    • New home sales declined 12.8% m/m to a seasonally adjusted annual rate of 635,000 (Briefing.com consensus 645,000) from an upwardly revised 728,000 (from 646,000) in June. New home sales were up 4.3% yr/yr.
      • The key takeaway from the report is that there was a big upward revision for June, yet there was no follow-through in July despite low mortgage rates and lower median sales prices. Sales were down big in three of the four regions and the total number of new homes sold was still below the originally reported 646,000 increase for June.
  • Commodities:
    • WTI crude: -2.0% to $54.16/bbl
    • Gold: +1.9% to $1537.50/ozt
    • Copper: -1.2% to $2.53/lb
  • Currencies:
    • EUR/USD: +0.6% to 1.1146
    • GBP/USD: +0.3% to 1.2288
    • USD/CNH: +0.6% to 7.1337
    • USD/JPY: -1.0% to 105.31
  • The Week Ahead:
    • Monday: July Durable Orders (prior 2.0%) and Durable Orders -ex transportation (prior 1.2%) at 8:30 ET
    • Tuesday: June FHFA Housing Price Index (prior 0.1%) and June S&P Case-Shiller Home Price Index (prior 2.4%) at 9:00 ET; August Consumer Confidence (prior 135.7) at 10:00 ET; and $40 bln 2-yr Treasury note auction results at 13:00 ET
    • Wednesday: Weekly MBA Mortgage Index (prior -0.9%) at 7:00 ET; weekly crude oil inventories (prior -2.7M) at 10:30 ET; and $41 bln 5-yr Treasury note auction results at 13:00 ET
    • Thursday: July Advance International Trade in Goods (prior -$74.2 bln), July Advance Retail Inventories (prior -0.1%), July Advance Wholesale Inventories (prior 0.2%), Q2 GDP - Second Estimate (prior 2.1%), Q2 GDP Deflator - Second Estimate (prior 2.4%), weekly Initial Claims (prior 209K), and Continuing Claims (prior 1674K) at 8:30 ET; July Pending Home Sales (prior 2.8%) at 10:00 ET; weekly natural gas inventories (prior +59 bcf) at 10:30 ET; and $32 bln 7-yr Treasury note auction results at 13:00 ET
    • Friday: July Personal Income (prior 0.4%), July Personal Spending (prior 0.3%), July PCE Price Index (prior 0.1%), and July Core PCE Price Index (prior 0.2%) at 8:30 ET; August Chicago PMI (prior 44.4) at 9:45 ET; and Final August University of Michigan Consumer Sentiment (prior 92.1) at 10:00 ET

10-Yr: +21/32… EUR/USD: 1.1146… USD/JPY: 105.31…

01:15PM ET

Bid Persists

  • U.S. Treasuries have seen continued buying interest, which has pressured yields to fresh lows. Thanks to today's bid, the 10-yr yield is now just four basis points above its low from last week while the 30-yr yield has another ten basis points to go before hitting a fresh low for the year. Equities, meanwhile, are hitting fresh session lows as the renewed sense of caution remains in place. The U.S. Dollar Index is down 0.5% at 97.72.
  • Yield Check:
    • 2-yr: -8 bps to 1.52%
    • 3-yr: -9 bps to 1.44%
    • 5-yr: -9 bps to 1.40%
    • 10-yr: -9 bps to 1.52%
    • 30-yr: -8 bps to 2.03%

10-Yr: +25/32… EUR/USD: 1.1140… USD/JPY: 105.40…

11:15AM ET

Gains Extended

  • U.S. Treasuries have climbed to fresh session highs in response to a series of recent tweets from President Trump. President Trump took to Twitter just as the market got done digesting fairly neutral comments from Fed Chairman, Jay Powell. The president first asked, "who is our bigger enemy, Jay Powell or Chairman Xi?" then tweeted, "Our great American companies are hereby ordered to immediately start looking for an alternative to China, including bringing your companies HOME and making your products in the USA." While the president does not have the authority to simply order a change in how companies do business, he could influence these decisions through policy changes. The recent surge in Treasuries coincided with a spike in gold futures while equities fell to their lowest levels of the day.
  • Yield Check:
    • 2-yr: -8 bps to 1.52%
    • 3-yr: -8 bps to 1.45%
    • 5-yr: -8 bps to 1.41%
    • 10-yr: -7 bps to 1.55%
    • 30-yr: -4 bps to 2.06%

10-Yr: +19/32… EUR/USD: 1.1129… USD/JPY: 105.59…

10:31AM ET

On the Highs

  • U.S. Treasuries trade at their best levels of the day after reclaiming their early-morning losses. Treasury futures pointed to a lower start shortly before the cash open, but the losses were largely erased after it was reported that China will impose retaliatory tariffs on imports from the U.S. on September 1 and December 15. Chinese officials threatened to retaliate after President Trump announced the latest round of tariffs, but today's report confirmed these plans. On a separate note, the market has had a chance to respond to Fed Chairman Jay Powell's opening remarks at the Jackson Hole Symposium. However, Mr. Powell's comments were largely in-line with what has been said in the past. The Fed Chairman acknowledged that recent weeks have been "eventful" and he reiterated that the Fed will "act as appropriate" to sustain the expansion.
  • Yield Check:
    • 2-yr: -3 bps to 1.57%
    • 3-yr: -4 bps to 1.49%
    • 5-yr: -4 bps to 1.45%
    • 10-yr: -3 bps to 1.58%
    • 30-yr: -3 bps to 2.08%

10-Yr: +7/32… EUR/USD: 1.1078… USD/JPY: 106.33…

10:18AM ET

Data Recon

  • New home sales declined 12.8% m/m to a seasonally adjusted annual rate of 635,000 (Briefing.com consensus 645,000) from an upwardly revised 728,000 (from 646,000) in June. New home sales were up 4.3% yr/yr.
  • The key takeaway from the report is that there was a big upward revision for June, yet there was no follow-through in July despite low mortgage rates and lower median sales prices. Sales were down big in three of the four regions and the total number of new homes sold was still below the originally reported 646,000 increase for June.
    • New home sales for July by region: Northeast (+50.0%); Midwest (-11.1%); South (-16.1%); and West (-14.2%).
    • The median new home price declined 4.5% yr/yr to $312,800. The average sales price was down 1.1% to $388,000.
    • The inventory of new homes for sale rose to 6.4 months at the July sales pace from 5.5 months in June.
    • Homes priced at $399,999 or less accounted for 71% of new home sold, versus 75% in June and 68% a year ago.
  • Yield check:
    • 2-yr: -3 bps to 1.57%
    • 3-yr: -4 bops to 1.49%
    • 5-yr: -3 bps to 1.46%
    • 10-yr: -2 bps to 1.59%
    • 30-yr: unch at 2.10%

10-Yr: +2/32… EUR/USD: 1.1072… USD/JPY: 106.41…

07:57AM ET

Pullback Deepens

  • U.S. Treasuries are on track to extend their losses from yesterday with longer tenors remaining at the forefront of the weakness. Treasury futures retreated during the Asian session, continuing their retreat until attention shifted to action in Europe. Futures notched pre-market lows around 4:00 ET while recent trade saw a rebound to levels from last night. Overall risk tolerance improved a touch, even though the People's Bank of China fixed the yuan at its lowest level in more than 11 years. Fed Chairman, Jay Powell, will deliver the opening remarks at the Jackson Hole Symposium at 10:00 ET. Bank of England Governor, Mark Carney, will speak at 15:00 ET. European Central Bank President, Mario Draghi, and Bank of Japan Governor, Haruhiko Kuroda, are not attending this year's meeting. The U.S. Dollar Index is up 0.2% at 98.39.
  • Yield Check:
    • 2-yr: +3 bps to 1.63%
    • 3-yr: +2 bps to 1.55%
    • 5-yr: +3 bps to 1.52%
    • 10-yr: +3 bps to 1.64%
    • 30-yr: +3 bps to 2.13%
  • News:
    • South Korea's Finance Ministry maintained South Korea's growth forecast between at 2.4%-2.5% but acknowledged that meeting the forecast has become more difficult.
    • The People's Bank of China fixed the yuan at 7.0572 per dollar, making for the weakest fix since March 2008.
    • Japan's July National CPI ticked up 0.1% m/m (last 0.0%), increasing 0.5% yr/yr, as expected (last +0.7%). July National Core CPI rose 0.6% yr/yr, as expected (last 0.6%).
    • New Zealand's Q2 Retail Sales increased 0.2% qtr/qtr (expected 0.1%; last 0.7%), growing 0.2% yr/yr, as expected (last 0.7%).
    • Singapore's July CPI ticked up 0.4% yr/yr (expected 0.6%; last 0.6%).
  • Commodities:
    • WTI Crude: -0.1% to $55.30/bbl
    • Gold: -0.2% to $1506.10/ozt
    • Copper: +0.2% to $2.56/lb
  • Currencies:
    • EUR/USD: -0.2% to 1.1059
    • GBP/USD: -0.3% to 1.2216
    • USD/CNH: UNCH at 7.0926
    • USD/JPY: +0.2% to 106.65
  • Data out Today:
    • 10:00 ET: July New Home Sales (Briefing.com consensus 645,000; prior 646,000)
  • Fed Speakers:
    • 10:00 ET: Fed Chairman Jay Powell

10-Yr: -8/32… EUR/USD: 1.1059… USD/JPY: 106.65…

03:11PM ET

Long Bond Paces Reluctant Retreat

  • U.S. Treasuries retreated on Thursday with the long bond leading the move. Treasury futures slipped overnight after global investors received a set of mostly better than expected PMI readings from large economies in Asia and Europe. However, the improvements were limited, leaving Japan's Manufacturing PMI and Germany's Manufacturing PMI below 50.0, indicating continued contraction. Treasuries followed their lower start with a swift rebound that produced session highs after the U.S. flash Manufacturing PMI for August decreased to 49.9 from 50.4, making for the first contractionary reading in ten years. The U.S. Manufacturing PMI typically does not attract as much attention as the ISM report, but this release generated some headlines since it fell to a multi-year low. The morning rebound gave way to renewed selling, which pressured most tenors toward the middle of today's trading range. The U.S. Dollar Index slipped 0.1% to 98.17. Officials from the Federal Reserve and other central banks have gathered in Jackson, Wyoming for the annual symposium on monetary policy. This year's theme is "Challenges for Monetary Policy" and Fed Chairman Jay Powell will deliver opening remarks tomorrow at 10:00 ET. The full agenda and the list of participants will be released this evening.
  • Yield Check:
    • 2-yr: +3 bps to 1.60%
    • 3-yr: +4 bps to 1.53%
    • 5-yr: +3 bps to 1.49%
    • 10-yr: +3 bps to 1.61%
    • 30-yr: +5 bps to 2.10%
  • News:
    • South Korea will pull out of a military information sharing pact with Japan. The pact was set for an automatic renewal over the upcoming weekend.
    • Bank of Korea forecast continued weakness in South Korean chip exports through the rest of the year.
    • Reuters reported that Chinese buyers purchased a modest amount of soybeans between August 9 and August 15.
    • Japan's August flash Manufacturing PMI rose to 49.5 (expected 49.8) from 49.4 while flash Services PMI improved to 53.4 from 51.8.
    • Australia's August flash Manufacturing PMI decreased to 51.3 from 51.6 while flash Services PMI fell to 49.2 from 52.3.
    • Italy's President, Sergio Matterella, will hold another consultation with party leaders on Tuesday to see if a new majority government can be established.
    • British Prime Minister, Boris Johnson, met with German Chancellor, Angela Merkel, yesterday, followed by a meeting with French President, Emmanuel Macron, today. Ms. Merkel said that the Irish backstop issue "can be solved", but many media outlets interpreted this statement as a concession from the EU.
    • German real estate lender, Berlin Hyp, sold EUR1 bln worth of mortgage-backed securities at a yield of -0.59%, according to Financial Times.
    • Eurozone's August flash Manufacturing PMI ticked up to 47.0 (expected 46.3) from 46.5 while flash Services PMI ticked up to 53.4 (expected 53.0) from 53.2.
    • Germany's August flash Manufacturing PMI rose to 43.6 (expected 43.0) from 43.2 while flash Services PMI dipped to 54.4 (expected 54.1) from 54.5.
  • Today's Data:
    • The Conference Board's Leading Economic Index (LEI) increased 0.5% in July (Briefing.com consensus +0.2%) following an upwardly revised 0.1% decline (from -0.3%) in June.
      • The key takeaway from the report is that it reflected a slower growth environment, evidenced by five of the ten components failing to make a positive contribution to the overall increase.
    • Initial jobless claims decreased by 12,000 to a very low 209,000 (Briefing.com consensus 218,000) for the week ending August 17. Continuing claims fell by 54,000 to 1.674 million for the week ending August 10.
      • The key takeaway from the report was that it covered the period in which the survey for the August employment report was conducted. Accordingly, the very low level of initial claims should feed expectations for another solid increase in nonfarm payrolls.
    • Weekly natural gas inventories increased by 59 bcf after increasing by 49 bcf during the previous week.
  • Commodities:
    • WTI crude: -0.7% to $55.28/bbl
    • Gold: -0.5% to $1508.40/ozt
    • Copper: -1.2% to $2.56/lb
  • Currencies:
    • EUR/USD: UNCH at 1.1086
    • GBP/USD: +1.1% to 1.2257
    • USD/CNH: +0.3% to 7.0861
    • USD/JPY: -0.2% to 106.41
  • The Day Ahead:
    • 10:00 ET: July New Home Sales (Briefing.com consensus 645,000; prior 646,000)

10-Yr: -7/32… EUR/USD: 1.1086… USD/JPY: 106.41…

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