Updated: 01-15-2019

The Market at 03:24PM ET
10-Year: -4/32…2.711…
EUR/USD: 1.1413…
USD/JPY: 108.50…

Moving the Market

-- 8:30 ET: December PPI (actual -0.2%; Briefing.com consensus -0.1%; prior 0.1%), December Core PPI (actual -0.1%; Briefing.com consensus 0.2%; prior 0.3%), and January Empire State Manufacturing Survey (actual 3.9; Briefing.com consensus 12.2; prior 10.9)

-- Brexit vote expected around 14:00 ET

03:24PM ET

Treasuries Hold

  • U.S. Treasuries ended Tuesday on a mostly flat note, as most tenors reclaimed their intraday losses in the afternoon while the long bond settled near its midday low. Treasuries climbed out of the gate, but the early advance stalled after 2s, 5s, and 10s approached, but failed to overtake, their session highs from yesterday. Mid-morning trade saw Treasuries slide to session lows, but the selling abated near yesterday's lows. The late afternoon featured the Brexit vote in the British parliament, with MPs voting 432-202 to reject the withdrawal bill negotiated by Prime Minister Theresa May. Prime Minister May will now face a confidence vote, but it is unclear if the UK will be able to present a new Brexit proposal with just over two months left before the official withdrawal date (March 29). Treasuries lurched higher in immediate response to today's vote, but the long bond returned to its low by the close while shorter tenors finished closer to the midpoint of the day's range.
  • Yield Check:
    • 2-yr: UNCH at 2.52%
    • 3-yr: +1 bp to 2.51%
    • 5-yr: UNCH at 2.53%
    • 10-yr: UNCH at 2.71%
    • 30-yr: +1 bp to 3.07%
  • News:
    • South China Morning Post reported that five Chinese companies are expected to default on roughly $450 million worth of debt after defaults in 2018 reached a record of $17 billion.
    • U.S. Trade Representative Robert Lighthizer said he saw little progress in last week's talks on structural issues and intellectual property protections with representatives from China, according to Senator Chuck Grassley.
    • Kansas City Fed President Esther George said that while rates are not at a neutral level yet, they are getting close, giving the Fed the ability to be "cautious and patient."
  • Today's Data:
    • The Producer Price Index for final demand declined 0.2% (Briefing.com consensus -0.1%) while the index for final demand, less food and energy, declined 0.1% (Briefing.com consensus +0.2%). The monthly changes left the index for final demand up 2.5% year-over-year, unchanged from November, and the index for final demand, less food and energy, up 2.7%, also unchanged from November.
      • The key takeaway from this report is that producer price inflation is moderating, which will suggest in the market's mind that consumer price inflation is going to as well.
  • Commodities:
    • WTI crude: +2.6% to $51.92/bbl
    • Gold: -0.3% to $1287.85/ozt
    • Copper: -0.8% to $2.64/lb
  • Currencies:
    • EUR/USD: -0.5% to 1.1413
    • GBP/USD: -0.1% to 1.2854
    • USD/CNH: +0.2% to 6.7749
    • USD/JPY: +0.3% to 108.50
  • The Day Ahead:
    • 7:00 ET: Weekly MBA Mortgage Index (prior 23.50%)
    • 8:30 ET: December Import Prices ex-oil (prior -0.3%), and Export Prices ex-agriculture (prior -1.0%)
    • 10:00 ET: January NAHB Housing Market Index (Briefing.com consensus 56; prior 56)
    • 10:30 ET: Weekly EIA Crude Oil Inventories (prior -1.7 mln)
    • 14:00 ET: January Fed Beige Book
    • 16:00 ET: November Net Long-Term TIC Flows (prior $31.3 bln)

10-Yr: -4/32… EUR/USD: 1.1413… USD/JPY: 108.50…

01:33PM ET

Holding Ground

  • U.S. Treasuries hover near their lows that were reached about an hour ago. The Treasury market has not shown much of a reaction to recent comments from Kansas City Fed President Esther George, who will have a vote on this year's FOMC. The Kansas City Fed President said that while rates are not at a neutral level yet, they are getting close, giving the Fed the ability to be "cautious and patient." Elsewhere, the U.S. Dollar Index has extended its gain to 0.6% at 96.23. The greenback has benefited from a slide in the euro, which has returned to its 50-day moving average (1.1382). ECB President Mario Draghi spoke today, acknowledging that economic growth in the eurozone has undershot expectations.
  • Yield Check:
    • 2-yr: +2 bps to 2.54%
    • 3-yr: +2 bps to 2.52%
    • 5-yr: +1 bp to 2.53%
    • 10-yr: +1 bp to 2.72%
    • 30-yr: +2 bps to 3.08%

10-Yr: -3/32… EUR/USD: 1.1388… USD/JPY: 108.58…

11:02AM ET

Early Gains Surrendered

  • U.S. Treasuries have backed off their opening highs, pressuring most tenors into negative territory. Treasuries spent the initial 30 minutes of the session in a push to fresh highs, but the rally fizzled out after the 5-yr note briefly climbed above yesterday's opening high. The recent pullback from highs has been paced by the long bond, which is approaching last week's low. Elsewhere, the U.S. Dollar Index has backed off its morning high, but it remains up 0.2% at 95.84.
  • Yield Check:
    • 2-yr: +1 bp to 2.53%
    • 3-yr: +1 bp to 2.51%
    • 5-yr: UNCH at 2.53%
    • 10-yr: UNCH at 2.71%
    • 30-yr: +1 bp to 3.07%

10-Yr: -3/32… EUR/USD: 1.1429… USD/JPY: 108.52…

09:08AM ET

Data Recon

  • The Producer Price Index for final demand declined 0.2% (Briefing.com consensus -0.1%) while the index for final demand, less food and energy, declined 0.1% (Briefing.com consensus +0.2%). The monthly changes left the index for final demand up 2.5% year-over-year, unchanged from November, and the index for final demand, less food and energy, up 2.7%, also unchanged from November.
  • The key takeaway from this report is that producer price inflation is moderating, which will suggest in the market's mind that consumer price inflation is going to as well.
    • The index for final demand goods declined 0.4%. Most of that drop was the result of a 5.4% drop in the index for final demand energy.
    • The index for final demand services slipped 0.1%.  that downturn was led by a 0.3% decline in the index for final demand trade services.
    • Processed goods for intermediate demand dropped 0.9%, which was the largest decline sine February 2016.
    • the index for unprocessed goods for intermediate demand surged 11.2%, which was the biggest increase sine November 2006.  Most of that uptick was owed to a 24.1% rise in prices for unprocessed energy materials.
  • The Empire State Manufacturing Survey General Business Conditions Index fell to 3.9 in January (Briefing.com consensus 12.2) from 11.5 in December, led by a deceleration in new orders, inventories, and the number of employees. The six-month outlook also dropped, falling to 17.8 from 30.6.
  • The key takeaway from the report is that it fits the view that there is a slowdown in manufacturing activity, which has piqued concerns about a broader slowdown in economic activity unfolding in 2019.
  • Yield check:
    • 2-yr: unch at 2.52%
    • 3-yr: -2 bps to 2.48%
    • 5-yr: -3 bps to 2.49%
    • 10-yr: -2 bps to 2.69%
    • 30-yr: unch at 3.06%

10-Yr: +5/32… EUR/USD: 1.1441… USD/JPY: 108.36…

08:07AM ET

Longer Tenors Inch Higher

  • Longer-dated U.S. Treasuries are on track for a modestly higher start. Treasury futures saw some backtracking during the early portion of the overnight session, but the small pullback gave way to an early-morning rally, which has lifted longer tenors to the midpoint of yesterday's range while shorter tenors have approached yesterday's highs. The Brexit withdrawal bill will be up for vote around 14:00 ET, but it is not expected to pass. The U.S. Dollar Index is up 0.3% at 95.87, hovering at a one-week high.
  • Yield Check:
    • 2-yr: +1 bp to 2.53%
    • 3-yr: UNCH at 2.50%
    • 5-yr: -1 bp to 2.51%
    • 10-yr: -2 bps to 2.69%
    • 30-yr: -2 bps to 3.04%
  • News:
    • China's National Development and Reform Commission said that countercyclical adjustments in macroeconomic policy will be strengthened while fiscal policy will be implemented in a proactive manner. However, Premier Li Keqiang said that the country's government will not resort to flood-like stimulus despite the increasing downward pressure on the economy.
    • South China Morning Post reported that five Chinese companies are expected to default on roughly $450 million worth of debt after defaults in 2018 reached a record of $17 billion.
    • The European Central Bank is reportedly increasing pressure on Italian and other European banks to accelerate write-downs of non-performing loans.
  • Commodities:
    • WTI Crude: +1.3% to $51.19/bbl
    • Gold: UNCH at $1290.80/ozt
    • Copper: +0.2% to $2.64/lb
  • Currencies:
    • EUR/USD: -0.3% to 1.1429
    • GBP/USD: -0.2% to 1.2836
    • USD/CNH: +0.1% to 6.7675
    • USD/JPY: +0.4% to 108.54
  • Data out Today:
    • 8:30 ET: December PPI (Briefing.com consensus -0.1%; prior 0.1%), December Core PPI (Briefing.com consensus 0.2%; prior 0.3%), and January Empire State Manufacturing Survey (Briefing.com consensus 12.2; prior 10.9)
  • Fed Speakers:
    • Minneapolis Fed President (non-voter) Neel Kashkari at 11:30 ET
    • Dallas Fed President (non-voter) Robert Kaplan at 13:00 ET
    • Kansas City Fed President (FOMC voter) Esther George at 13:00 ET

10-Yr: +5/32… EUR/USD: 1.1428… USD/JPY: 108.57…

03:13PM ET

Steeper

  • U.S. Treasuries saw a bid in overnight action following a disappointing trade balance report out of China that showed a surprising year-over-year decline in both imports and exports in December.  That report stoked global growth concerns that left the U.S. equity market on track for a negative start.  Stocks did indeed head south at the open, but once again, a buy-the-dip effort helped stem the early wave of selling interest.  The S&P 500, down 1.0% at its low, was down 0.4% as of this writing. Treasuries lost their tailwind as stocks recovered and a curve-steepening trade played out.  U.S. government shutdown concerns and Tuesday's important Brexit plan vote in the UK Parliament shored up support for shorter-dated maturities.  The 10-2 spread widened by four basis points to 19 basis points.
  • Yield Check:
    • 2-yr: -3 bps to 2.52%
    • 3-yr: -1 bp to 2.50%
    • 5-yr: -1 bp to 2.52%
    • 10-yr: +1 bp to 2.71%
    • 30-yr: +2 bps to 3.06%
  • News:
    • China's December trade surplus $57.06 billion (expected surplus of $51.53 billion; last surplus of $44.71 billion). December Imports -7.6% year-over-year (expected 5.0%; last 3.0%) and December Exports -4.4% year-over-year (expected 3.0%; last 5.4%). December FDI +0.9% year-over-year (last -1.3%).
    • China's Banking and Insurance Regulatory Commission announced that the non-performing loan ratio at Chinese commercial banks increased to 1.89% in the fourth quarter from 1.87% in the third quarter.
    • President Trump has reportedly offered to meet North Korea's Chairman Kim Jong-un in mid-February in Vietnam.
    • Bloomberg reported that a general election may be called in Germany if the ruling parties are unable to agree on tax policy.
    • Eurozone November Industrial Production -1.7% month-over-month (expected -1.5%; last 0.1%); -3.3% year-over-year (expected -2.3%; last 1.2%)
  • Commodities:
    • WTI Crude: -2.1% to $50.58/bbl
    • Gold: -0.2% to $1291.65/ozt
    • Copper: -0.8% to $2.64/lb
  • Currencies:
    • EUR/USD: UNCH at 1.1465
    • GBP/USD: +0.2% to 1.2861
    • USD/CNH: +0.03% to 6.7622
    • USD/JPY: -0.3% to 108.19
  • Looking Ahead to Tuesday
    • 08:30 ET: PPI for December (Briefing.com consensus -0.1%; Prior 0.1%)
    • 08:30 ET: Core PPI for December (Briefing.com consensus 0.2%; Prior 0.3%)
    • 08:30 ET: Empire State Manufacturing Survey for January (Briefing.com consensus 12.2; Prior 10.9)
    • 14:00 ET (estimated): UK Parliament vote on Brexit plan
    • Fed speakers: Minneapolis Fed President Kashkari (non-FOMC voter) at 11:30 a.m. ET; Dallas Fed President Kaplan (non-FOMC voter) at 1:00 p.m. ET; Kansas City Fed President George (FOMC voter) at 1:00 p.m. ET  

10-Yr: -1/32… EUR/USD: 1.1465… USD/JPY: 108.19…

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