Updated: 03-03-2021

The Market at 03:15PM ET
10-Year: -16/32…1.470…
EUR/USD: 1.2069…
USD/JPY: 106.97…

Moving the Market

-- Treasuries face renewed selling but long bond outperforms amid speculation about another operation twist

-- U.S. Dollar Index trying to remain positive for the week

-- 7:00 ET: Weekly MBA Mortgage Index (actual 0.5%; prior -11.4%)

-- 8:15 ET: February ADP Employment Change (actual 117,000; Briefing.com consensus 180,000; prior 195,000)

-- 9:45 ET: Final IHS Markit Services PMI (actual 59.8; prior 58.3)

-- 10:00 ET: February ISM Non-Manufacturing Index (actual 55.3%; Briefing.com consensus 58.6%; prior 58.7%)

-- 14:00 ET: March Fed Beige Book

03:15PM ET

Treasuries Slide Ahead of Powell Speech

  • U.S. Treasuries ended the midweek session on a lower note, though intraday action saw longer tenors rebound off lows that were reached in the late morning. Treasuries started the day with losses across the curve, continuing their retreat through the first couple hours of action. The early selling took place after an upbeat overnight session and it was paced by the 10-yr note and the 30-yr bond. The opening downdraft lifted the 30-yr yield above its high from Friday, but that's where the selling abated. The 30-yr bond bounced off its low, pressuring its yield below its opening level while shorter tenors underperformed, holding the bulk of their losses into the close. The intraday strength in longer tenors was owed to a growing sense that Fed Chairman Powell will hint at another operation twist when he speaks at tomorrow's virtual Wall Street Journal jobs summit. This policy tool, which would involve selling shorter-term debt and buying longer term notes and bonds with the proceeds, was last utilized in 2012. The U.S. Dollar Index backed off its intraday high in the afternoon, but still climbed 0.2% to 90.93.
  • Yield Check:
    • 2-yr: +2 bps to 0.14%
    • 3-yr: +5 bps to 0.29%
    • 5-yr: +5 bps to 0.73%
    • 10-yr: +6 bps to 1.47%
    • 30-yr: +4 bps to 2.25%
  • News:
    • The Fed's Beige Book for February noted that economic activity in most districts expanded at a modest pace during the first six weeks of 2021. Leisure and hospitality remained weak while manufacturing activity improved. Commercial real estate worsened while home prices continued climbing in most districts. Employment levels rose at a slow pace while demand for labor varied significantly by industry. Input costs rose with steel and lumber prices leading the way.
    • Chicago Fed President (FOMC voter) Evans said he does not see a need to respond to the recent rise in yields, but he acknowledged that the average maturity of bond purchases could be extended.
    • Bloomberg reported that former President Trump is considering another run in 2024 with a different candidate for VP.
    • Expectations are mounting for the People's Bank of China to lower the reserve requirement ratio for some banks later this month.
    • Australia's Treasurer acknowledged that massive stimulus measures around the world are creating risks to financial stability.
    • The French Banking Federation is reportedly lobbying for a law to move euro clearinghouses from the City of London.
    • Bundesbank President Weidmann said that extended lockdowns in Q2 would delay the region's recovery and that Germany's domestic economy is strong enough to withstand the weak phase.
    • China's February Caixin Services PMI dipped to 51.5 from 52.0.
    • Japan's February Services PMI ticked up to 46.3 from 46.1.
    • Hong Kong's January Retail Sales fell 13.6% yr/yr (last -13.2%) and February Manufacturing PMI rose to 50.2 from 47.8.
    • India's February Nikkei Services PMI rose to 55.3 from 52.8 (expected 53.0).
    • Australia's Q4 GDP expanded 3.1% qtr/qtr (expected 2.5%; last 3.4%) but contracted 1.1% yr/yr (expected -1.8%; last -3.7%). February AIG Construction Index dipped to 57.4 from 57.6 and February Services PMI fell to 53.4 from 55.6.
    • Eurozone's January PPI was up 1.4% m/m (expected 1.2%; last 0.9%) and unchanged yr/yr (expected -0.4%; last -1.1%). February Services PMI rose to 45.7 from 45.4 (expected 44.7).
    • Germany's February Services PMI fell to 45.7 from 46.7 (expected 45.9).
    • U.K.'s February Services PMI rose to 49.5 from 39.5 (expected 49.7).
    • France's February Services PMI fell to 45.6 from 47.3 (expected 43.6).
    • Italy's February Services PMI rose to 48.8 from 44.7 (expected 46.0). Q4 GDP contracted 1.9% qtr/qtr (expected -2.0%; last 15.9%), falling 6.6% yr/yr, as expected (last -5.0%).
    • Spain's February Services PMI rose to 43.1 from 41.7 (expected 43.0).
  • Today's Data:
    • The ISM Non-Manufacturing Index fell to 55.3% in February (Briefing.com consensus 58.6%) from 58.7% in January. The dividing line between expansion and contraction is 50.0%. The February reading marks the ninth straight month of growth for the services sector, but it is the slowest pace since May 2020.
      • The key takeaway from the report for a market focusing increased attention on inflation trends, as economic activity picks up, is the upward move in the Prices Index to 71.8% from 64.2% in January. This elevated reading follows on the heels of Monday's ISM Manufacturing Index, which showed the Prices Index at its highest level (86.0%) since May 2008.
    • The ADP Employment Change report pointed to the addition of 117,000 private payrolls in February (Briefing.com consensus 180,000) while the January increase was revised up to 195,000 from 174,000.
    • The IHS Markit Services PMI rose to 59.8 in the final February reading from 58.3.
    • The weekly MBA Mortgage Index rose 0.5% to follow last week's 11.4% drop. The Purchase Index rose 1.8% while the Refinance Index ticked up 0.1%.
    • Weekly crude oil inventories increased by 21.56 mln barrels after increasing by 1.29 mln barrels during the previous week.
  • Commodities:
    • WTI crude: +2.5% to $61.31/bbl
    • Gold: -1.0% to $1715.70/ozt
    • Copper: -1.7% to $4.145/lb
  • Currencies:
    • EUR/USD: -0.2% to 1.2069
    • GBP/USD: +0.1% to 1.3963
    • USD/CNH: UNCH at 6.4747
    • USD/JPY: +0.3% to 106.97
  • The Day Ahead:
    • 8:30 ET: Weekly Initial Claims (Briefing.com consensus 725,000; prior 730,000), Continuing Claims (prior 4.419 mln), revised Q4 Productivity (Briefing.com consensus -4.8%; prior -4.8%), and revised Q4 unit labor costs (Briefing.com consensus 6.8%; prior 6.8%)
    • 10:00 ET: January Factory Orders (Briefing.com consensus 2.0%; prior 1.1%)
    • 10:30 ET: Weekly natural gas inventories (prior -338 bcf)

10-Yr: -16/32… EUR/USD: 1.2069… USD/JPY: 106.97…

12:44PM ET

Long Bond Bounces

  • U.S. Treasuries hover near their lows while the long bond is now rising above its opening level. The market reached lows around 10:30 ET, followed by an uptick that has been paced by longer tenors. The newfound strength in the long bond is likely owed to speculation that Fed Chairman Powell will signal plans for another operation twist during his speech that will be delivered shortly after noon ET. Elsewhere, the U.S. Dollar Index has backed off its high, trimming its gain to just 0.1% at 90.91.
  • Yield Check:
    • 2-yr: +3 bps to 0.15%
    • 3-yr: +5 bps to 0.29%
    • 5-yr: +6 bps to 0.74%
    • 10-yr: +6 bps to 1.48%
    • 30-yr: +3 bps to 2.25%

10-Yr: -19/32… EUR/USD: 1.2069… USD/JPY: 106.96…

10:45AM ET

Losses Widened

  • U.S. Treasuries have spent the first couple hours of action in a steady retreat off their opening levels. The selling has been paced by the 10-yr note, and it has lifted the benchmark yield to within three basis points of its high from Friday. The retreat in Treasuries is weighing on growth stocks once again. The S&P 500 is now down 0.5% while the top-weighted technology sector (-1.2%) underperforms. Elsewhere, the U.S. Dollar Index is continuing its push toward yesterday's intraday high. The Index is up 0.3% at 91.04.
  • Yield Check:
    • 2-yr: +2 bps to 0.14%
    • 3-yr: +4 bps to 0.28%
    • 5-yr: +7 bps to 0.74%
    • 10-yr: +8 bps to 1.49%
    • 30-yr: +6 bps to 2.28%

10-Yr: -19/32… EUR/USD: 1.2058… USD/JPY: 107.15…

10:27AM ET

Data Recon

  • The ISM Non-Manufacturing Index fell to 55.3% in February (Briefing.com consensus 58.6%) from 58.7% in January. The dividing line between expansion and contraction is 50.0%. The February reading marks the ninth straight month of growth for the services sector, but it is the slowest pace since May 2020.
  • The key takeaway from the report for a market focusing increased attention on inflation trends, as economic activity picks up, is the upward move in the Prices Index to 71.8% from 64.2% in January. This elevated reading follows on the heels of Monday's ISM Manufacturing Index, which showed the Prices Index at its highest level (86.0%) since May 2008.
    • The New Orders Index dropped to 51.9% from 61.8%.
    • The Production Index slipped to 55.5% from 59.9%.
    • The Employment Index decreased to 52.7% from 55.2%.
    • The Backlog of Orders Index rose to 55.2% from 50.9%.
  • Yield Check:
    • 2-yr: +2 bps to 0.14%
    • 3-yr: +4 bps to 0.28%
    • 5-yr: +6 bps to 0.73%
    • 10-yr: +7 bps to 1.48%
    • 30-yr: +5 bps to 2.27%

10-Yr: -21/32… EUR/USD: 1.2056… USD/JPY: 107.08…

08:01AM ET

Selling Pressure Returns

  • U.S. Treasuries are on track for a lower start with longer tenors pacing the early weakness. Treasury futures spent the early portion of the night in a narrow range, sliding to lows as attention shifted from Asia to Europe. The overnight session saw solid gains in most equity markets as the focus remained on reopening plans. Casinos in Macau stopped requiring negative coronavirus tests from guests today. Meanwhile, Japan's government will decide by tomorrow whether to extend Tokyo's State of Emergency. Treasury futures reached their lows around 5:30 ET, followed by a small bounce. The U.S. Dollar Index is higher by 0.2% at 90.93, working to reclaim its loss from yesterday.
  • Yield Check:
    • 2-yr: UNCH at 0.12%
    • 3-yr: +2 bps to 0.26%
    • 5-yr: +2 bps to 0.70%
    • 10-yr: +3 bps to 1.45%
    • 30-yr: +2 bps to 2.24%
  • News:
    • Expectations are mounting for the People's Bank of China to lower the reserve requirement ratio for some banks later this month.
    • The ECB reportedly has no plans to counter the recent selling in the region's bond market.
    • Australia's Treasurer acknowledged that massive stimulus measures around the world are creating risks to financial stability.
    • The French Banking Federation is reportedly lobbying for a law to move euro clearinghouses from the City of London.
    • Bundesbank President Weidmann said that extended lockdowns in Q2 would delay the region's recovery and that Germany's domestic economy is strong enough to withstand the weak phase.
    • China's February Caixin Services PMI dipped to 51.5 from 52.0.
    • Japan's February Services PMI ticked up to 46.3 from 46.1.
    • Hong Kong's January Retail Sales fell 13.6% yr/yr (last -13.2%) and February Manufacturing PMI rose to 50.2 from 47.8.
    • India's February Nikkei Services PMI rose to 55.3 from 52.8 (expected 53.0).
    • Australia's Q4 GDP expanded 3.1% qtr/qtr (expected 2.5%; last 3.4%) but contracted 1.1% yr/yr (expected -1.8%; last -3.7%). February AIG Construction Index dipped to 57.4 from 57.6 and February Services PMI fell to 53.4 from 55.6.
    • New Zealand's January Building Consents rose 2.1% m/m (last 5.1%).
    • Eurozone's January PPI was up 1.4% m/m (expected 1.2%; last 0.9%) and unchanged yr/yr (expected -0.4%; last -1.1%). February Services PMI rose to 45.7 from 45.4 (expected 44.7).
    • Germany's February Services PMI fell to 45.7 from 46.7 (expected 45.9).
    • U.K.'s February Services PMI rose to 49.5 from 39.5 (expected 49.7).
    • France's February Services PMI fell to 45.6 from 47.3 (expected 43.6).
    • Italy's February Services PMI rose to 48.8 from 44.7 (expected 46.0). Q4 GDP contracted 1.9% qtr/qtr (expected -2.0%; last 15.9%), falling 6.6% yr/yr, as expected (last -5.0%).
    • Spain's February Services PMI rose to 43.1 from 41.7 (expected 43.0).
    • Swiss February CPI was up 0.2% m/m (expected 0.4%; last 0.1%) but down 0.5% yr/yr (expected -0.3%; last -0.5%).
  • Commodities:
    • WTI Crude: +1.5% to $60.65/bbl
    • Gold: -0.6% to $1723.40/ozt
    • Copper: -0.7% to $4.194/lb
  • Currencies:
    • EUR/USD: -0.2% to 1.2066
    • GBP/USD: +0.1% to 1.3966
    • USD/CNH: -0.1% to 6.4699
    • USD/JPY: +0.2% to 106.93
  • Data out Today:
    • 7:00 ET: Weekly MBA Mortgage Index (actual 0.5%; prior -11.4%)
    • 8:15 ET: February ADP Employment Change (Briefing.com consensus 180,000; prior 174,000)
    • 9:45 ET: Final IHS Markit Services PMI (prior 58.3)
    • 10:00 ET: February ISM Non-Manufacturing Index (Briefing.com consensus 58.6%; prior 58.7%)
    • 10:30 ET: Weekly crude oil inventories (prior +1.29 mln)
    • 14:00 ET: March Fed Beige Book

10-Yr: -9/32… EUR/USD: 1.2066… USD/JPY: 106.93…

03:14PM ET

5-Yr Note Paces Another Day of Gains

  • U.S. Treasuries recorded modest gains on Tuesday after spending the session in a narrow range. The trading day started with slim gains in most tenors while the long bond opened in the red after lagging yesterday. However, the 30-yr bond began rising off its opening low immediately after the start while shorter tenors built on their early gains. The 5-yr note outperformed for the second day in a row, though the 10-yr note closed that performance gap as the day went on. Today's advance pressured the 5-yr yield back to its opening level from Thursday while yields on the 10-yr note and the 30-yr bond finished near yesterday's lows. Fed Governor Brainard said that there are some signs of stretched asset valuations, but they are not broad-based. The FOMC voter said that last week's slide in Treasuries caught her eye and that conditions for tapering bond purchases will not be met for "some time." The U.S. Dollar Index (90.78, -0.25, -0.3%) approached its February high (91.60) in overnight trade before retreating throughout the day.
  • Yield Check:
    • 2-yr: UNCH at 0.12%
    • 3-yr: -2 bps to 0.24%
    • 5-yr: -4 bps to 0.68%
    • 10-yr: -3 bps to 1.42%
    • 30-yr: UNCH at 2.22%
  • News:
    • Texas Governor Abbott announced that his state's mask mandate will end on March 10 and that all businesses will be allowed to reopen fully.
    • China Banking and Insurance Regulatory Commission expressed concern about bubbles in global financial markets and in China's property sector.
    • U.K.'s Health Secretary confirmed that the country's government is planning to impose vaccine certificates for travel.
    • The Reserve Bank of Australia left its cash rate and its 3-yr yield target at 0.10%, as expected.
    • Germany's lockdown will reportedly be extended until March 28.
    • The Italian government is expected to seek additional stimulus.
    • Japan's January jobs/applications ratio rose to 1.10 from 1.06 (expected 1.06) while January Unemployment Rate remained at 2.9% (expected 3.0%).
    • South Korea's January Industrial Production fell 1.6% m/m (expected 1.0%; last 2.7%) but was up 7.5% yr/yr (expected 5.3%; last 2.5%). January Retail Sales rose 1.6% m/m (last 0.1%) while February Nikkei Manufacturing PMI improved to 55.3 from 53.2.
    • Australia's January Building Approvals fell 19.4% m/m (expected -3.0%; last 12.0%).
    • Eurozone's February CPI was up 0.9% yr/yr, as expected (last 0.9%). February Core CPI was up 0.1% m/m (expected -0.5%; last -0.5%) and up 1.1% yr/yr (expected 1.4%; last 1.4%).
    • Germany's January Retail Sales fell 4.5% m/m (expected -0.3%; last -9.1%), dropping 8.7% yr/yr (expected 1.3%; last 2.8%). February unemployment increased by 9,000 (expected -13,000; last -37,000) while the Unemployment Rate remained at 6.0%, as expected.
    • U.K.'s February Nationwide HPI rose 0.7% m/m (expected -0.3%; last -0.2%), jumping 6.9% yr/yr (expected 5.6%; last 6.4%).
    • Spain's February unemployment increased by 44,400 (last 76,200).
  • Commodities:
    • WTI crude: -1.2% to $59.79/bbl
    • Gold: +0.6% to $1733.70/ozt
    • Copper: +2.6% to $4.217/lb
  • Currencies:
    • EUR/USD: +0.4% to 1.2092
    • GBP/USD: +0.4% to 1.3970
    • USD/CNH: +0.1% to 6.4730
    • USD/JPY: UNCH at 106.72
  • The Day Ahead:
    • 7:00 ET: Weekly MBA Mortgage Index (prior -11.4%)
    • 8:15 ET: February ADP Employment Change (Briefing.com consensus 180,000; prior 174,000)
    • 9:45 ET: Final IHS Markit Services PMI (prior 58.3)
    • 10:00 ET: February ISM Non-Manufacturing Index (Briefing.com consensus 58.6%; prior 58.7%)
    • 10:30 ET: Weekly crude oil inventories (prior +1.29 mln)
    • 14:00 ET: March Fed Beige Book

10-Yr: +13/32… EUR/USD: 1.2092… USD/JPY: 106.72…

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