The Market at 03:27PM ET
Moving the Market
PPI: Actual 0.0%, consensus 0.0%, prior 0.1%
Core PPI: Actual 0.1%, consensus 0.1%, prior 0.2%
Net Long-Term TIC Flows (16): Prior -$18.7B
30Y Ends at Two-Month High of 3.354% Ahead of Tomorrow's FOMC Decision:
- Treasuries ended mixed as buyers held control up front while sellers were in charge at the long end.
- The complex held modest gains ahead of the cash open before this morning's in-line PPI data dropped maturities back to their break-even lines.
- Trade hovered little changed as the lunchtime hour approached before buying emerged in response to WSJ's Jon Hilsenrath indicating the Fed will keep its the 'considerable time' language in tomorrow's Statement despite many speculating it would be removed.
- Maturities were unable to make new highs following the report, and longer dated maturities managed to put in fresh lows ahead of the cash close.
- Up front, the 2Y fell -1.2bps to 0.528%. Recent action has been locked between 0.500% support and 0.560% resistance as traders await the FOMC decision.
- In the belly, the 5Y eased -2.1bps to 1.774%. Two days of buying has dropped the yield onto near-term support.
- A relatively flat session saw the 10Y settle -0.2bps @ 2.589%. The benchmark yield saw an early test of support in the 2.550% area before bouncing into the close.
- Selling at the long end ran the 30Y up +1.3bps to 3.354%. The yield on the long bond finished at its highest level in two months.
- A steeper curve won out as the 2-10-yr spread widened to 206bps.
- Precious metals gained with gold +$2 @ $1237 and silver higher by $0.12 @ $18.74.
- Data: MBA Mortgage Index (7), CPI, current account balance (8:30), NAHB Housing Market Index (10), and the FOMC rate decision (14).
Dollar Fights to Hold 84.00:
- The Dollar Index hovered little changed for most of the morning before WSJ's Jon Hilsenrath reported tomorrow's FOMC Statement is likely to keep the 'considerable time' language despite many market participants believing it would be omitted.
- The greenback slumped to session lows near 83.90 before reclaiming the 84.00 level, and is lower against all of its major peers.
- EURUSD is +30 pips @ 1.2970 as trade flirts with its best close in almost two weeks. The single currency hovered little changed for much of the session before gaining ground on the Hilsenrath report.
- GBPUSD is +55 pips @ 1.6280 after reversing its early losses. Sterling pressed to the 1.6100 level in response to this morning's in-line to cooler than expected pricing data, but has managed to reverse those losses. Action is likely to remain whippy into Thursday's Scotland independence vote. Eurozone data is limited to Final CPI. British data is heavy as the Average Earnings Index, claimant count change, and unemployment rate accompany the latest MPC votes.
- USDCHF is -35 pips @ .9320 as selling takes hold for the third time in four days. The Swiss National Bank is set to opine on Thursday, but markets are broadly expecting no change to current policy.
- USDJPY is -10 pips @ 107.10 as light selling develops for a second day. The pair has seen little response to a Nikkei report indicating the Bank of Japan will downgrade its economic assessment in next month's report.
- AUDUSD is +65 pips @ .9100 as trade reverses to what is likely to be its first gain in seven days. The hard currency came under pressure in overnight trade after the latest Reserve Bank of Australia minutes warned of a property bubble, but reversed course on reports China was launching a CNY500 bln QE-type program. The 200 dma provides the first level of resistance near .9180.
- USDCAD is -75 pips @ 1.0980 following the strong manufacturing sales (2.5% MoM actual v. 1.1% MoM expected) report. Today's weakness has the pair lower for a second session and has action testing support dating back the end of July.
Afternoon Update: 2Y +01/32 @ 99 30/32...3Y +02/32 @ 99 27/32...5Y +05/32 @ 99 10/32...7Y +06/32 @ 98 14/32...10Y +06/32 @ 98 07/32...30Y +10/32 @ 95 31/32...EURUSD +30 pips @ 1.2970...GBPUSD +55 pips @ 1.6280...USDJPY -20 pips @ 107.00...USDCHF -35 pips @ .9320...AUDUSD +65 pips @ .9100...USDCAD -70 pips @ 1.0985
Treasuries Trade Flat:
- Treasuries drift little changed as trade settles into a lull ahead of the lunchtime hour.
- The complex erased its early gains following the in-line PPI data, and has spent the majority of the morning stuck near the flat line.
- Yields across the curve are off less than -1bp apiece with the 10Y holding @ 2.583%.
- A slightly flatter curve remains in play as the 2-10-yr spread trades 204bps.
- Precious metals have worked their way back into positive territory with gold +$3 @ $1238 and silver +$0.15 @ $18.77.
Markets Await Fed, TLTRO, and Scotland: The Dollar Index is sliding toward the low end of 84 ahead of tomorrow's FOMC meeting. Market participants have been running the dollar higher as the Fed is expected to take the next step in tightening its extremely loose monetary policy. But it would appear that some of the weaker economic data and global issues are forcing some dollar bulls to take profits in case the Fed does not come out as hawkish as some expect. The DXY is still holding above the 84 level ahead of tomorrow's news. The multi-year high of 84.75 remains a key resistance level for the market.
- The euro is holding the 1.2900 level ahead of tomorrow's meeting. Economic data in the region remains weak as the latest ZEW surveys came in lower than expected. Markets will be closely watching the Scotland vote as well as the TLTRO auction which are both Thursday (results for Scotland expected Friday).
- The pound is straddling the 1.6200 level ahead of the Scotland vote. There has been a growing belief that the 'No' vote would prevail, but it remains a close call. Inflation data from the region was largely in-line with expectations. Inflation continues to run below the BoE's target of 2%.
- The yen continues to trade in the 107 area as weak data from China and a strong dollar has led the yen to multi-year lows. The dollar is now trading near six-year highs against the yen.
Treasuries Trim Gains:
- Treasuries have trimmed their early gains and now hover little changed as the Federal Open Market Committee begins its two-day meeting.
- The complex has come under pressure following this morning's in-line PPI data with maturities across most of the complex now testing their overnight lows.
- A small bid up front has the 2Y -0.4bps @ 0.536%.
- Buying continues to have the biggest impact on the belly as the 5 holds -1.1bps @ 1.786%. Action has checked up on support in the area that dates back to the spring.
- The 10Y trades -1.1bps @ 2.580% as action continues to slide off two-month highs.
- The long bond lags with the 30Y -0.7bps @ 3.334%. Recent action has struggled near the 100 dma.
- A slightly flatter curve remains with the 2-10-yr spread tighter @ 204.5bps.
- Precious metals have slumped to session lows with gold -$2 @ $1233 and silver flat @ $18.62.
- Treasuries linger near session highs following the in-line PPI (0.0% MoM).
- Early buying is having the biggest impact on the belly where yields are lower by close to -3bps.
- The 10Y leads the way lower, -3.3bps @ 2.558%.
- A flatter curve persists as the 2-10-yr spread trades 202.5bps.
- Precious metals remain bid with gold +$3 @ $1238 and silver +$0.10 @ $18.72.
- Yields are mixed across Europe as buyers are in control in the core while selling takes place in the periphery.
- Eurozone ZEW Economic Sentiment (14.2 actual v. 21.3 expected, 23.7 previous) fell well short of estimates.
- German Bunds are bid following the better than expected ZEW Economic Sentiment Survey (6.9 actual v. 5.2 expected, 8.6 previous). A modest advance has the 10Y lower by -3bps @ 0.990%.
- UK Gilts are firm after CPI (1.5% YoY actual v. 1.5% YoY expected) matched estimates while PPI Input (-0.6% MoM actual v. 0.1% MoM expected) and RPI (2.4% YoY actual v. 2.5% YoY expected) were cooler than expected. The 10Y is off -3bps @ 2.520%. Thursday's Scottish independence vote has the ability to create tremendous volatility.
- French OATs drift little changed. A flat session has the 10Y stuck @ 1.430%.
- Spanish Bonos are lower following today's 6-month and 12-month bill auctions, which drew higher yields than a month ago as worries of a Catalonia independence vote rise. The 6-month auction drew 0.111% (0.080% previous) while the 12-month auction saw 0.219% (0.160%) previous. The 10Y trades +2bps @ 2.365%.
- Italian BTPs are seeing modest selling pressure. A +2bp advance has the 10Y up to 2.490%.
Australian Dollar Lower for Seventh Day:
- The Dollar Index has trimmed its overnight losses and hovers little changed near 84.25.
- This level is likely to remain in play into tomorrow's FOMC rate decision.
- EURUSD is flat @ 1.2940 as trade lingers near 14-month lows. The single currency ramped to session highs near 1.2965 in response to the mixed eurozone (14.2 actual v. 21.3 expected, 23.7 previous) and German (6.9 actual v. 5.2 expected, 8.6 previous) ZEW surveys, but has erased those gains as the data is disseminated. The 1.2900 level remains key into tomorrow's FOMC decision.
- GBPUSD is -35 pips @ 1.6190 as action presses lower for a third straight day. Sterling slumped to its worst levels of the day near 1.6165 into this morning's data, but has lifted off that level despite the in-line CPI (1.5% YoY actual v. 1.5% YoY expected) and PPI Input (-0.6% MoM actual v. 0.1% MoM expected) and RPI (2.4% YoY actual v. 2.5% YoY expected) misses. The 1.5900/1.6100 support area will be watched closely into Thursday's Scottish independence vote.
- USDCHF is -15 pips @ .9340 as action holds near its best levels in a year. An uneventful session appears to be in the works.
- USDJPY is -5 pips @ 107.15 as trade steadies at six-year highs. Overnight, Bank of Japan Governor Haruhiko Kuroda pushed back against the belief the weak yen was hurting the economy, saying companies are increasing domestic investment.
- AUDUSD is -15 pips @ .9020 as sellers remain in control for a seventh session. Today's weakness comes in response to the latest Reserve Bank of Australia minutes warning of a property bubble down under. USDCNY ticked up to 6.1462 as foreign direct investment slid -1.8% YTDoY.
- USDCAD is flat @ 1.1055. The quiet trade has action holding at five and a half-month highs ahead of today's manufacturing sales data. Bank of Canada Governor Stephen Poloz will take the mic this afternoon.
Treasuries Firm in Overnight Trade:
- Treasuries are bid ahead of the cash open with trade pressing the overnight highs.
- Ranges have been a bit wider than usual, expanding to 4bps across most of the curve.
- Up front, the 2Y holds -0.8bps @ 0.532%. The early bid has the yield testing one-week lows.
- In the belly, the 5Y is -2.8bps @ 1.767%. Two days of selling has the pair nearing a 50% retracement of the five-day winning streak that took place last week. The 1.760% area is home to the first level of support.
- The 10Y trades -3bps @ 2.561%. Action continues to slide off two-month highs with support near 2.520% and the 100 dma moving into focus.
- At the long end, the 30Y is -2.2bps @ 3.319%. A pullback into the 3.225%/3.250% area cannot be ruled out as the 50 dma also lurks in the vicinity.
- A flatter curve has developed as the 2-10-yr spread trades 203bps.
- Precious metals are bid with gold +$5 @ $1240 and silver +$0.17 @ $18.79.
- Data: PPI (8:30) and Net Long-Term TIC Flows (16).
Treasuries Eke Out a Gain:
- Treasuries ended with small gains, paring their early advance.
- The complex firmed into the cash open and pressed to its best levels of the day in response to the industrial production (-0.1% actual v. 0.3% expected) and capacity utilization (78.8% actual v. 79.3% expected) misses.
- However, selling would take hold over the remainder of the morning before settling into a lull in afternoon trade.
- Up front, the 2Y eased -2bps to 0.540%. Action continues to hold near levels last seen in May 2011.
- Outperformance in the belly dropped the 5Y -2.4bps to 1.795% as action slid off one-year highs. Support in the 1.780% area will be watched closely in the days ahead.
- The 10Y fell -2.3bps to 2.591%. The benchmark yield spent the entire U.S. session locked in less than 3bp range near two-month highs.
- The long bond lagged as the 30Y slipped -1bp to 3.341%. Today's bid dropped action off two-month highs, but was unable to push the yield back below the 100 dma.
- Little change along the curve saw the 2-10-yr spread hold @ 205bps.
- Precious metals finished with small gains as gold added +$2 to $1233 and silver tacked on +$0.02 to $18.63.
- Data: PPI (8:30) and Net Long-Term TIC Flows (16).