Updated: 08-16-2018

The Market at 03:10PM ET
10-Year: -3/32…2.872…
EUR/USD: 1.1366…
USD/JPY: 110.88…

Moving the Market

-- China's Ministry of Commerce announced that vice commerce minister Wang Shouwen will visit the United States in late August to discuss trade with U.S. Treasury Under Secretary David Malpass

-- July Housing Starts (actual 1168K; Briefing.com consensus 1256K; prior 1158K), July Building Permits (actual 1311K; Briefing.com consensus 1316K; prior 1292K), weekly Initial Claims (actual 212K; Briefing.com consensus 217K; prior 214K), Continuing Claims (actual 1721K; prior 1760K), and August Philadelphia Fed (actual 11.9; Briefing.com consensus 23.0; prior 25.7)

03:10PM ET

Treasuries Post Modest Losses

  • U.S. Treasuries finished Thursday on a modestly lower note, ending a few ticks beneath their opening levels. Treasury futures retreated in overnight action after the market received indication that officials from China and the U.S. are looking to restart trade discussions, albeit at a lower level. China's vice commerce minister Wang Shouwen will meet with U.S. Treasury Under Secretary David Malpass on August 22/23. Treasuries widened their losses in morning trade, but found support near yesterday's lows. A midday recovery, which took place alongside a rebound in the Dollar Index, returned longer tenors into the top half of the day's range while 2s and 5s remained closer to their lows. The 2s10s spread widened by two basis points to 26 bps, edging up from its cycle low.
  • Yield Check:
    • 2-yr: UNCH at 2.61%
    • 5-yr: +2 bps to 2.75%
    • 10-yr: +2 bps to 2.87%
    • 30-yr: +1 bp to 3.03%
  • News:
    • Housing starts increased 0.9% in July to a seasonally adjusted annual rate of 1.168 million (Briefing.com consensus 1.256 mln) following a downwardly revised 1.158 million (from 1.173 mln) for June. Building permits increased 1.5% to 1.311 million (Briefing.com consensus 1.316 mln) from an upwardly revised 1.292 million (from 1.273 mln) for June.
      • The key takeaway from the report is the recognition that single-family starts rose just 0.9% to 862,000, which is a modest pace that likely reflects the headwinds builders are facing with higher costs for materials, labor, and land.
    • The Philadelphia Fed Index dropped to 11.9 in August (Briefing.com consensus 23.0) from 25.7 in July. That is the lowest reading in 21 months. The dividing line between expansion and contraction is 0.0.
      • The key takeaway from the report is that there was an uptick in the diffusion index for future general activity following four straight declines, as more than half 50% of firms expect increases in activity over the next six months.
    • Initial claims for the week ending August 11 decreased by 2,000 to 212,000 (Briefing.com consensus 217,000). Continuing claims for the week ending August 4 decreased by 39,000 to 1.721 million.
      • The key takeaway from the report is that low initial claims activity is consistent with a tight labor market.
  • Commodities:
    • WTI crude: +0.6% to $65.44/bbl
    • Gold: -0.1% to $1183.90/ozt
    • Copper: +2.3% to $2.62/lb
  • Currencies:
    • EUR/USD: +0.2% to 1.1366
    • USD/JPY: +0.2% to 110.88
  • A Look to Friday:
    • July Leading Indicators (Briefing.com consensus 0.5%; prior 0.5%) and preliminary August Michigan Consumer Sentiment Index (Briefing.com consensus 97.8; prior 97.9) at 10:00 ET

10-Yr: -3/32… EUR/USD: 1.1366… USD/JPY: 110.88…

02:11PM ET

Overnight Loss Reclaimed

  • The U.S. Dollar Index trades little changed at 96.73 after climbing off its session low. Last evening, the greenback took a step back, ceding ground to the yuan and major currencies in the Dollar Index basket after it was announced that China's vice minister of commerce will meet with the U.S. Treasury under secretary for international affairs in late August to discuss trade. The dollar's overnight pullback was extended in morning trade, but the Index found support just above its session low from Tuesday, motoring back to its flat line. The Dollar Index is seeking its sixth consecutive gain, having climbed 1.7% since last Wednesday.
  • EUR/USD: +0.12% to 1.1359
    • Eurozone June trade surplus EUR22.50 billion (expected surplus of EUR18.00 billion; last surplus of EUR16.50 billion)
    • Germany's July WPI 0.0% month-over-month (expected 0.5%; last 0.5%); +3.5% year-over-year (last 3.4%)
  • GBP/USD: +0.06% to 1.2703
    • UK's July Retail Sales +0.7% month-over-month (expected 0.2%; last -0.5%); +3.5% year-over-year (expected 3.0%; last 2.9%). July Core Retail Sales +0.9% month-over-month (expected 0.1%; last -0.6%); +3.7% year-over-year (expected 2.8%; last 2.9%)
  • USD/CHF: +0.35% to 0.9969
    • 50-day moving average at 0.9933
  • USD/JPY: +0.18% to 110.88
    • 50-day moving average at 110.98 Japan's adjusted July trade deficit JPY500 million (expected surplus of JPY200 million; last surplus of JPY800 million). July Imports +14.6% year-over-year (expected 14.4%; last 2.6%) and July Exports +3.9% year-over-year (expected 6.3%; last 6.7%)
  • USD/CNY: -0.80% to 6.879
    • USD/CNH: -0.99% to 6.873
    • China's July FDI +2.3% (last 1.1%)
    • Yuan reclaims yesterday's loss
    • The People's Bank of China reportedly banned Shanghai banks from depositing or lending offshore yuan through the country's free trade zone. This decision should result in tighter liquidity and a higher cost of shorting the yuan.
  • USD/INR: -0.21% to 70.11
  • USD/RUB: -0.67% to 66.87
    • CBR Reserves $457.60 billion (last $458.00 billion)
  • USD/TRY: -1.93% to 5.837
    • Lira slides from session high after U.S. Treasury Secretary Steven Mnuchin said Turkish officials will face new sanctions if the country does not release Pastor Andrew Brunson in short order
  • USD/BRL: -0.13% to 3.898
  • USD/ARS: -0.47% to 29.61
  • USD/MXN: -0.47% to 19.07
    • 200-day moving average at 19.04
  • USD/ZAR: +1.99% to 14.85
  • USD/CAD: +0.19% to 1.3166
    • 50-day moving average at 1.3132
    • Canada's June Manufacturing Sales +1.1% month-over-month (expected 1.0%; last 1.5%). July ADP Employment Change 11,600 (last -10,500)
  • AUD/USD: +0.25% to 0.7257
    • Australia's July Employment Change -3,900 (expected 15,000; last 58,200) and Full Employment Change 19,300 (last 43,200). July Unemployment Rate 5.3% (expected 5.4%; last 5.4%) and July Participation Rate 65.5% (expected 65.7%; last 65.7%)
  • NZD/USD: +0.23% to 0.6580

10-Yr: -4/32… EUR/USD: 1.1359… USD/JPY: 110.88…

01:31PM ET

Opening Levels Revisited

  • U.S. Treasuries have climbed off their session lows, returning to their opening levels. The recent rebound took place as the U.S. Dollar Index clawed its way back to the unchanged level. The rebound in Treasuries returned action into the middle of today's narrow trading range. The benchmark 10-yr note has spent the day inside a ten-tick range while the 2-yr note has traversed a two-tick range. On the currency side, the euro and pound remain slightly higher against the dollar, but today's gains pale in comparison to losses incurred by the two currencies over the past two weeks. The euro (1.1367) is up 0.2% against the dollar while the pound (1.2706) is up just 0.1%.
  • Yield Check:
    • 2-yr: +1 bp to 2.62%
    • 5-yr: +3 bps to 2.75%
    • 10-yr: +3 bps to 2.88%
    • 30-yr: +1 bp to 3.03%

10-Yr: -4/32… EUR/USD: 1.1367… USD/JPY: 110.91…

11:44AM ET

Back to Lows

  • U.S. Treasuries have backed off their morning highs, putting longer tenors just a few ticks above their overnight lows. Treasuries followed their lower open with a rebound that ran into resistance near yesterday's closing levels. All in all, the early action has been fairly quiet, but it should be acknowledged that today's modest selling comes amid renewed hopes for a resolution to the trade dispute with China. The yuan has reclaimed the bulk of this week's loss against the dollar, receiving some assistance from reports that the People's Bank of China banned Shanghai banks from depositing or lending offshore yuan through the country's free trade zone. This decision should result in tighter liquidity and a higher cost of shorting the yuan. In addition to its decline against the yuan, the dollar trades lower against most other currencies. The U.S. Dollar Index is down 0.3% at 96.45, hovering above its session low from Tuesday.
  • Yield Check:
    • 2-yr: +1 bp to 2.62%
    • 5-yr: +3 bps to 2.76%
    • 10-yr: +3 bps to 2.88%
    • 30-yr: +2 bps to 3.05%

10-Yr: -5/32… EUR/USD: 1.1386… USD/JPY: 110.80…

09:50AM ET

Opening Losses Trimmed

  • U.S. Treasuries started the cash session with modest losses, but the first hour of trade has seen a steady rebound, which has lifted 2s and 30s to their flat lines while 5s and 10s remain a bit lower. The rebound in the long bond has pressured the 30-yr yield back below its 50-day moving average (3.037%) after starting the session just above that level. Elsewhere, the U.S. Dollar Index hovers a bit above its overnight low, showing a loss of 0.2% at 96.50, which puts the Index on track for its first decline since last Wednesday.
  • Yield Check:
    • 2-yr: UNCH at 2.61%
    • 5-yr: +1 bp to 2.73%
    • 10-yr: +1 bp to 2.86%
    • 30-yr: +1 bp to 3.03%

10-Yr: -2/32… EUR/USD: 1.1396… USD/JPY: 110.65…

09:28AM ET

Data Recon

  • Housing starts increased 0.9% in July to a seasonally adjusted annual rate of 1.168 million (Briefing.com consensus 1.256 mln) following a downwardly revised 1.158 million (from 1.173 mln) for June. Building permits increased 1.5% to 1.311 million (Briefing.com consensus 1.316 mln) from an upwardly revised 1.292 million (from 1.273 mln) for June.
  • The key takeaway from the report is the recognition that single-family starts rose just 0.9% to 862,000, which is a modest pace that likely reflects the headwinds builders are facing with higher costs for materials, labor, and land.
    • Permits for single-family units increased 1.9% to 869,000. Permits for multi-unit dwellings increased 0.7% to 442,000.
    • Single-family starts were down 5.7% in the Northeast, up 22.3% in the Midwest, up 2.0% in the South, and down 10.0% in the West.
    • The number of units under construction at the end of the period totaled 1.122 million units. That was a smidgen below the Q2 average of 1.123 mln, which points to a slight drag for Q3 GDP forecasts.
  • Initial claims for the week ending August 11 decreased by 2,000 to 212,000 (Briefing.com consensus 217,000). Continuing claims for the week ending August 4 decreased by 39,000 to 1.721 million.
  • The key takeaway from the report is that low initial claims activity is consistent with a tight labor market.
    • The four-week moving average for initial claims increased by 1,000 to 215,500.
    • The four-week moving average for continuing claims decreased by 8,000 to 1,738,500.
    • Initial claims have held below 300,000 for 180 straight weeks.
  • The Philadelphia Fed Index dropped to 11.9 in August (Briefing.com consensus 23.0) from 25.7 in July. That is the lowest reading in 21 months. The dividing line between expansion and contraction is 0.0.
  • The key takeaway from the report is that there was an uptick in the diffusion index for future general activity following four straight declines, as more than half 50% of firms expect increases in activity over the next six months.
    • The New Orders Index fell to 9.9 from 31.4.
    • The Shipments Index decreased to 16.6 from 24.7.
    • The Prices Paid Index slipped to 55.0 from 62.9.
    • The Number of Employees Index dipped to 14.3 from 16.8.
    • The diffusion index for future general activity increased to 38.8 from 29.0.
  • Yield check:
    • 2-yr: +1 bp to 2.62%
    • 5-yr: +2 bps to 2.74%
    • 10-yr: +1 bp to 2.86%
    • 30-yr: +1 bp to 3.03%

10-Yr: -1/32… EUR/USD: 1.1380… USD/JPY: 110.63…

08:24AM ET

European Yields Mixed

  • Core European debt has seen some selling while Italian issues have reclaimed a portion of yesterday's losses amid a slight improvement in sentiment. The Norges Bank released its latest policy statement, priming the market for the first rate hike in September. The central bank noted that the balance of risks has not changed substantially since the June policy statement. Turkish President Recep Tayyip Erdogan spoke with French President Emmanuel Macron a day after having a conversation with German Chancellor Angela Merkel. The meetings have not produced any concrete agreements yet. Meanwhile, an unnamed IMF official said that Turkey has not shown any interest in reaching out to the IMF for assistance.
  • European Economic Data:
    • Eurozone June trade surplus EUR22.50 billion (expected surplus of EUR18.00 billion; last surplus of EUR16.50 billion)
    • Germany's July WPI 0.0% month-over-month (expected 0.5%; last 0.5%); +3.5% year-over-year (last 3.4%)
    • UK's July Retail Sales +0.7% month-over-month (expected 0.2%; last -0.5%); +3.5% year-over-year (expected 3.0%; last 2.9%). July Core Retail Sales +0.9% month-over-month (expected 0.1%; last -0.6%); +3.7% year-over-year (expected 2.8%; last 2.9%)
  • Yield Check:
    • France, 10-yr OAT: UNCH at 0.67%
    • Germany, 10-yr bund: +1 bp to 0.31%
    • Greece, 10-yr note: +4 bps to 4.30%
    • Italy, 10-yr BTP: -5 bps to 3.12%
    • Portugal, 10-yr PGB: -2 bps to 1.83%
    • Spain, 10-yr ODE: -2 bps to 1.44%
    • U.K., 10-yr gilt: +1 bp to 1.23%

10-Yr: -3/32… EUR/USD: 1.1369… USD/JPY: 110.81…

08:12AM ET

Tracking Lower Start

  • U.S. Treasuries are on track for a lower start, though Treasury futures have climbed off their overnight lows in recent trade. Longer tenors dipped into the middle of their trading range from yesterday, but they have recovered about a third of their overnight losses. The U.S. Dollar Index edged lower in overnight action in a move that coincided with an uptick in the yuan. The yuan ticked higher after China's Ministry of Commerce announced that vice commerce minister Wang Shouwen will visit the United States in late August to discuss trade with U.S. Treasury Under Secretary David Malpass. China's National Development and Reform Commission acknowledged that bankruptcy filings in China are on the rise this year.
  • Yield Check:
    • 2-yr: +1 bp to 2.62%
    • 5-yr: +3 bps to 2.75%
    • 10-yr: +2 bps to 2.87%
    • 30-yr: +2 bps to 3.04%
  • News:
    • Standard & Poor's noted that rated companies in India have been mostly resilient amid the rupee's depreciation.
    • China's July FDI +2.3% (last 1.1%)
    • Japan's adjusted July trade deficit JPY500 million (expected surplus of JPY200 million; last surplus of JPY800 million). July Imports +14.6% year-over-year (expected 14.4%; last 2.6%) and July Exports +3.9% year-over-year (expected 6.3%; last 6.7%)
    • Australia's July Employment Change -3,900 (expected 15,000; last 58,200) and Full Employment Change 19,300 (last 43,200). July Unemployment Rate 5.3% (expected 5.4%; last 5.4%) and July Participation Rate 65.5% (expected 65.7%; last 65.7%)
    • South Korea's July trade surplus $6.91 billion (last surplus $7.00 billion). July Imports +16.4% year-over-year (last 16.2%) and July Exports +6.2% year-over-year (last 6.2%)
  • Data out Today:
    • July Housing Starts (Briefing.com consensus 1256K; prior 1173K), July Building Permits (Briefing.com consensus 1316K; prior 1273K), weekly Initial Claims (Briefing.com consensus 217K; prior 213K), Continuing Claims (prior 1755K), and August Philadelphia Fed (Briefing.com consensus 23.0; prior 25.7) at 8:30 ET
    • Weekly natural gas inventories (prior +46 bcf) at 10:30 ET

10-Yr: -3/32… EUR/USD: 1.1368… USD/JPY: 110.86…

03:28PM ET

2s10s Spread Revisits Cycle Low

  • U.S. Treasuries ended the midweek session with gains across the curve as continued weakness in many emerging market currencies led to demand for safe-haven assets. Treasuries started the day with solid gains, extending their advance in midday trade. The market backed off session highs after it was reported that Qatar pledged to invest $15 billion in Turkey. That alleviated some of the worries about an economy that has been hit the hardest by recent dollar strength, but it didn't do much to allay concerns about the weakening yuan or some other currencies like the rand or rupee. Treasuries pulled back to their morning highs in midday trade, remaining near those levels until the close. The 10-yr yield settled at its lowest level in nearly a month while the 2s10s spread tightened back to its cycle low of 24 bps. The U.S. Dollar Index edged higher in morning trade, but ticked into negative territory in afternoon action, tracking its first decline since last Wednesday.
  • Yield Check:
    • 2-yr: -2 bps to 2.61%
    • 5-yr: -5 bps to 2.72%
    • 10-yr: -5 bps to 2.85%
    • 30-yr: -4 bps to 3.02%
  • News:
    • Retail sales increased 0.5% in July (Briefing.com consensus +0.1%) following a downwardly revised 0.2% increase (from +0.5%) in June. Excluding autos, retail sales rose 0.6% (Briefing.com consensus +0.3%) after increasing a downwardly revised 0.2% (from 0.4%) in June.
      • The key takeaway from the report is that the downward revisions to June mitigated the July headline surprise. That point notwithstanding, core retail sales, which exclude autos, gasoline station, building materials, and food services sales, were up 0.5%, which is a positive input for Q3 GDP forecasts.
    • Second quarter (Q2) productivity increased 2.9% (Briefing.com consensus 2.0%), which was the strongest increase since the first quarter of 2015. The uptick in Q2 productivity was the result of output increasing 4.8% and hours worked increasing 1.9%. Q2 unit labor costs, however, decreased 0.9% (Briefing.com consensus +0.5%), reflecting a 2.0% increase in hourly compensation and a 2.9% increase in productivity.
      • The key takeaway from the report is that labor costs look to be in check, which will facilitate a gradual tightening path for the Federal Reserve.
    • Industrial production increased 0.1% in July (Briefing.com consensus +0.4%) following an upwardly revised 1.0% increase (from +0.6%) in June.The capacity utilization rate was 78.1% (Briefing.com consensus 78.3%), unchanged from June, which was revised up from a previously reported 78.0%.
      • The key takeaway from the report is that it showed continued strength in manufacturing output, which offset declines in mining and utilities production.
    • Total business inventories increased 0.1% in June, as expected, after increasing a downwardly revised 0.3% (from 0.4%) in May. Total business sales increased 0.3% after increasing a downwardly revised 1.3% (from 1.4%) in May.
      • The key takeaway from the report is that business sales continued to outpace inventory growth, which is a favorable trend that carries the potential to lead to a better pricing environment for businesses.
  • Commodities:
    • WTI crude: -3.0% to $65.07/bbl
    • Gold: -1.3% to $1185.20/ozt
    • Copper: -4.5% to $2.56/lb
  • Currencies:
    • EUR/USD: +0.1% to 1.1349
    • USD/JPY: -0.5% to 110.64
  • A Look to Thursday:
    • July Housing Starts (Briefing.com consensus 1256K; prior 1173K), July Building Permits (Briefing.com consensus 1316K; prior 1273K), weekly Initial Claims (Briefing.com consensus 217K; prior 213K), Continuing Claims (prior 1755K), and August Philadelphia Fed (Briefing.com consensus 23.0; prior 25.7) at 8:30 ET
    • Weekly natural gas inventories (prior +46 bcf) at 10:30 ET

10-Yr: +11/32… EUR/USD: 1.1349… USD/JPY: 110.64…

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