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Update: 2015-09-04 15:55:26 ET

Moving the Market
  • RichmondFed President Lacker (FOMC voter) speaks on 'The Case Against Further Delay': Market turmoil effects on U.S. are limited; wages keeping pace with productivity; says one jobs report will not alter picture "materially"
  • August Nonfarm Payrolls: Actual 173K, Briefing.com Consensus 217K, Prior 245K (revised from 215K)
  • August Nonfarm Private Payrolls: Actual 140K, Briefing.com Consensus 210K, Prior 210K
  • August Unemployment Rate: Actual 5.1%, Briefing.com Consensus 5.2%, Prior 5.3%
  • August Hourly Earnings: Actual 0.3%, Briefing.com Consensus 0.2%, Prior 0.2%
  • Average Workweek: Actual 34.6, Briefing.com Consensus 34.6, Prior 34.6

9/4/2015
3:29:16 ET
10-Year:+10/32 2.12    GNMAs:     EUR/USD:1.1149    USD/JPY:118.93   

Treasuries Rally, Yield Curve Flattens 

  • The August Employment Situation Report was released this morning and the interest rates market initially reacted by increasing the probability of a September rate hike. This interpretation appeared logical as Hourly Earnings beat expectations (indicating mounting inflationary pressure) and the surprising decline in the unemployment rate indicated that few long-term unemployed workers are coming back into the labor market. As the day progressed, however, equities extended their losses, the dollar retreated, and Treasuries rallied to moderate gains for the session. The yield curve was flatter immediately following the announcement this morning, and the curve held that flatter posture into the close. The Treasury market appears to be betting on a Yellen put option 
  • Yield Check:
    • 2-yr: unch at 0.70%
    • 5-yr: -2 bps to 1.46%
    • 10-yr: -4 bps to 2.12%
    • 30-yr: -5 bps to 2.89%
  • News:
    • The August Employment Situation Report showed 173K nonfarm jobs added to the U.S. economy in August, well short of the Briefing.com consensus of 217K
      • The July reading was revised up to 245K from 215K 
    • Nonfarm Private Payrolls increased by 140K versus the Briefing.com consensus of 210K and the prior reading of 210K
    • The Unemployment Rate declined to 5.1%, better than the Briefing.com consensus of 5.2% and July UE rate of 5.3%
    • Hourly Earnings rose 0.3% in August, more than the Briefing.com consensus of 0.2% which was also the reading in July
    • The Average Workweek was 34.6 hours, in line with the consensus and July's number
    • Richmond Fed President Lacker (FOMC voter and hawk) spoke publicly, saying that the recent market turmoil would have limited effects on the U.S. and that wages are rising along with productivity gains, suggesting a labor market nearing capacity. Lacker said that one jobs report would not alter the picture "materially"
  • Commodities:
    • WTI crude: -1.71% to $45.95/bbl.
    • Gold: -0.33% to $1,120.9/troy oz.
    • Copper: -2.79% to $2.318/lb.
  • Currencies:
    • EUR/USD: +0.23% to $1.1149
    • USD/JPY: -0.99% to 118.93
  • Week Ahead:
    • Monday: July Consumer Credit (15:00 ET)
    • Tuesday: $24 bln 3-year auction (results at 13:00 ET)
    • Wednesday: MBA Mortgage Index for the week ending 9/5 (07:00 ET); July JOLTS - Job Openings (10:00 ET); $21 bln 10-year auction (reopening) (results at 13:00 ET)
    • Thursday: Initial Jobless Claims for the week ending 9/5 and Continuing Jobless Claims for the week ending 8/29 (08:30 ET); August Export Prices ex-ag. and Import Prices ex-oil. (08:30 ET); July Wholesale Inventories (10:00 ET); Natural Gas Inventories for the week ending 9/5 (10:30 ET); Crude Inventories for the week ending 9/5 (11:00 ET); $13 bln 30-year auction (reopening) (results at 13:00 ET)
    • Friday: August PPI and Core PPI (08:30 ET); September Sentiment (10:00 ET); August Treasury Budget (14:00 ET)

 
9/4/2015
2:30:15 ET
10-Year:+9/32 2.13    GNMAs:     EUR/USD:1.1150    USD/JPY:118.91   

Safe Havens Rally, Antipodeans Lose

  • The U.S. Dollar Index fell 0.23% to 96.19 after going positive following the August Employment Situation Report. Treasury yields turned lower in late morning and that took the air out of the dollar rally
    • Nonfarm Payrolls grew by 173K versus the Briefing.com consensus of 217K. The July figure was revised up from 245K to 215K
    • Hourly Earnings rose 0.3% m/m in August versus the Briefing.com consensus of 0.2% growth. The reading in July was +0.2%
  • EUR/USD: +0.26% to $1.1153 
    • German Factory Orders fell a worse-than-expected 1.4% m/m in July after a 1.8% jump in June
    • The eurozone's Retail Purchasing Managers' Index dropped to 51.4 from 54.2 in August
      • The figures for Germany, France, and Italy all declined and only Germany's retail sector remains in expansion
    • French Consumer Confidence disappointed expectations, holding steady at 93 in August
  • GBP/USD: -0.44% to $1.5187
  • USD/JPY: -1.00% to 118.92
    • In Japan, cash earnings saw nominal growth of 0.6% y/y in July versus expectations for a 2% jump. Wages fell 3% in June
  • USD/CHF: -0.10% to 97.31
    • Swiss inflation fell to its lowest level since 1959, with the Consumer Price Index falling 1.4% y/y in August (-0.2% m/m)
  • USD/CAD: +0.35% to 1.3242
    • The Canadian economy added 12K jobs in August, much better than both expectations and the prior month's gain of 6,600
    • The Ivey Purchasing Managers' Index rose to 58.0 in August versus 52.9 in July. Analysts had expected a decline
  • AUD/USD: -1.37% to $0.6922
  • NZD/USD: -1.42% to 0.6298
  • USD/RUB: +1.82% to 68.06
    • Russia's Consumer Price Index unexpectedly jumped to 15.8% y/y growth in August from a 15.6% annual rate in July

 
9/4/2015
2:00:34 ET
10-Year:+11/32 2.12    GNMAs:     EUR/USD:1.1169    USD/JPY:118.85   

2-Year Note Goes Positive for Session

  • While the U.S. Treasury market had concluded that the August Employment Situation Report was a bear-flattening development this morning, it appears to have changed its mind. We are now in a strong bull-flattening rally, with softer equities likely encouraging investors to buy government bonds
  • The S&P 500, while hardly going into any sort of capitulative panic, does seem very intent upon holding the 1,913 level. Short sellers will be very wary ahead of the weekend. Monday night, Chinese trade balance data will be released
  • Treasury Secretary Jacob Lew spoke to the Chinese Finance Minister Lou Jiwei on Friday at the G-20 meeting in Ankara. He said, according to a Treasury spokesperson, that the U.S. wanted to see market pressures dictate the value of the yuan
    • The ECB and the BoJ have both explicitly stated that a purpose of their unconventional monetary policy measures is currency devaluation, so it's hard to see why China is being scolded
  • Yield Check:
    • 2-yr: unch at 0.70%
    • 5-yr: -3 bps to 1.46%
    • 10-yr: -4 bps to 2.12%
    • 30-yr: -5 bps to 2.89%

 
9/4/2015
12:53:58 ET
10-Year:+9/32 2.13    GNMAs:     EUR/USD:1.1145    USD/JPY:118.98   

Curve Remains Flatter After Employment Report

  • Equities continue to grind lower this afternoon and Treasuries are consequently rallying. The S&P 500 is down 1.66% to 1,918.82
  • While the 2-year note yield had been 3 basis points higher on the session, it is now unchanged at 0.70%
    • If the 2-year is unchanged, then expectations for a September rate hike are little changed since the employment report, meaning that the selling of equities and buying of Treasuries appears unwarranted. That is not to say we are bullish on stocks, but simply that something is out of whack
  • Moody's has downgraded the ratings on senior debt for four Greek banks to C with a negative outlook
    • The Greek election will take place on September 20th. Polls suggest that New Democracy is running almost neck-and-neck with what remains of Syriza, previous the majority partner of the governing coalition
    • Prime Minister Alexis Tsipras stepped down in August to allow Greek voters to voice their opinion. Since then, many members of Syriza have defected to form a new party, Popular Unity
  • Yield Check:
    • 2-yr: unch at 0.70%
    • 5-yr: -1 bp to 1.47%
    • 10-yr: -3 bps to 2.13%
    • 30-yr: -5 bps to 2.89%

 
9/4/2015
11:55:49 ET
10-Year:+7/32 2.13    GNMAs:     EUR/USD:1.1115    USD/JPY:119.07   

Long End Rallies, Equities Sink

  • Markets are not wildly recalibrating their expectations for September liftoff today, but there is a change and it isn't positive. U.S. equity indices are slouching towards session lows although without much enthusiasm. The S&P 500 tested the bottom of its January-July range yesterday (1975ish), and appeared to find resistance there. On Tuesday, we appeared to test the high of April 2014 as support. The index continues to hold above the uptrend of the bull market that began in March of 2009 (see chart below)
  • 10's and 30's remain stronger on the session and it's getting hard to see what kind of fundamental catalyst would knock them down before the September 16-17th FOMC meeting without a large equity market rally
  • WTI crude is down 0.68% to $46.43/bbl. and gold is down 0.36% to $1,120.50/troy oz.
  • Yield Check:
    • 2-yr: +1 bps to 0.72%
    • 5-yr: unch at 1.48%
    • 10-yr: -3 bps to 2.13%
    • 30-yr: -4 bps to 2.89%

 
9/4/2015
10:57:02 ET
10-Year:+4/32 2.15    GNMAs:     EUR/USD:1.1123    USD/JPY:119.21   

Treasuries Mixed

  • 2 and 5-year notes are selling off today while 10's and bonds rally following an unexpectedly large increase in hourly earnings in the U.S. for the month of August
  • Equities have spent the two and a half hours since the announcement trying to rally, but continue to have trouble getting something going
  • Joseph LaVorgna, chief economist at Deutsche Bank, says that the fall in the unemployment rate to 5.1% in August puts us on track for a decline to 4.8% by yearend
  • WTI crude faltered in its most recent attempt to push into positive territory and now stands down 1.22% to $46.18/bbl.
  • Yield Check:
    • 2-yr: +3 bps to 0.73%
    • 5-yr: +1 bp to 1.49%
    • 10-yr: -1 bp to 2.15%
    • 30-yr: -4 bps to 2.89%

 
9/4/2015
10:00:38 ET
10-Year:+1/32 2.16    GNMAs:     EUR/USD:1.1120    USD/JPY:119.25   

Equities Find Buyers, Putting Pressure on 10's and 30's

  • Following the release of August's Employment Situation Report, equities sold off and that was tending to support the longer maturity Treasuries. Following the stock market open on Wall Street, however, equities found some buying interest and this has let the air out of 10 and 30-year Treasuries
    • The S&P rally is fizzling at the pixel, and the dance continues. The index now stands down 1.42% to 1,923.45
  • WTI crude is lower, now down 1.63% to $45.99/bbl.
  • The U.S. Dollar Index is unchanged at 96.40
  • We made an expensively early call on selling 10 and 30-year Treasuries yesterday. The gains have dissipated, but we messed that up. We still like it, but it would be encouraging to see Treasuries acting as something other than an inverse position in equities
  • Yield Check:
    • 2-yr: +2 bps to 0.71%
    • 5-yr: +1 bp to 1.49%
    • 10-yr: -1 bp to 2.15%
    • 30-yr: -2 bps to 2.91%

 
9/4/2015
9:17:54 ET
10-Year:+7/32 2.14    GNMAs:     EUR/USD:1.1122    USD/JPY:119.16   

Only 2-Year Note Is Red on Session 

  • The yield curve is flattening sharply this morning as Treasury investors adjust to a greater chance of a September rate hike 
  • Traders are now pricing in a 34% chance of a September rate hike. The chances for October and December are 46% and 62%, respectively. Those three figures were 26, 39, and 56% prior to the release of the Employment Situation Report
  • Equities are much lower overnight but still well above their lows from a significant post-NFP sell-off. The S&P 500 futures are down 1.3% to 1,920.75
  • WTI crude remains lower on the session, falling 0.56% to $46.49/bbl.
  • Gold has made fresh lows after spiking on the initial news of higher-than-expected wage growth. The front-month futures contract is down 0.53% to $1,118.20/troy oz.
  • Yield Check:
    • 2-yr: +2 bps to 0.72%
    • 5-yr: -1 bp to 1.48%
    • 10-yr: -2 bps to 2.14%
    • 30-yr: -5 bps to 2.89%

 
9/4/2015
8:47:46 ET
10-Year:+1/32 2.16    GNMAs:     EUR/USD:1.1108    USD/JPY:119.31   

Treasury Futures Little-Changed After Mixed Jobs Report

  • The Nonfarm Payroll number for August was 173K, well short of the Briefing.com consensus of 217K. The July number was revised up to 245K from 215K
  • Nonfarm Private Payrolls increased 140K versus the Briefing.com consensus of 210K and 210K in July
  • Hourly Earnings jumped by 0.3% versus the Briefing.com consensus of 0.2% and the 0.2% growth seen in July
  • The unemployment rate fell to 5.1%, better than the expectations of 5.2% and the prior reading of 5.3%
  • Taking the report in its entirety, it is generally seen as increasing the probability of a hike because of Hourly Earnings and the unemployment rate
    • Since the FOMC is not clear on how much slack remains in the labor market, it is watching labor costs closely for evidence of limited surplus capacity. Rising wages suggest that we are getting closer to full employment
  • Markets have not responded authoritatively. Gold has rallied, Treasuries are lower, but 10's and 30's are still green on the session. Equities are slightly lower than before the announcement. The dollar has rallied somewhat
  • Yield Check:
    • 2-yr: +2 bps to 0.72%
    • 5-yr: +1 bps to 1.49%
    • 10-yr: unch at 2.16%
    • 30-yr: -2 bps to 2.92%

 
9/4/2015
8:11:25 ET
10-Year:+6/32 2.14    GNMAs:     EUR/USD:1.1137    USD/JPY:119.30   

European Sovereigns Follow Through on Draghi Rally

  • European government bonds rallied across the board this morning as a general risk-off posture to global markets encouraged an extension of the rally that began yesterday on ECB President Mario Draghi's press conference. In it, he said, 'we will have to see whether [the negative risks to growth and inflation from market turmoil and the Chinese slowdown] are transitory or permanent, whether [what] will happen is worsening our medium-term outlook or is just a transitory effect,' Mr Draghi said. 'And then we will decide whether to do more.'
    • He made it clear that the ECB is willing and able to do more, although he said "we're not there yet."
    • The ECB also increased the limit on its share of any given country's debt stock from 25% to 33%, which does not expand the size of the 60 bln euro/month program
    • The current round of quantitative easing (which is supposed to affect the "quantity" of base money in the economy rather than the "price" of money, aka interest rates) is scheduled to run until September of 2016. Since the program was first announced, German 10-year Bund yields are actually higher, although advocates of the program will point out that this result shows that markets expect stronger growth and therefore the asset purchase program is having the desired result
  • Germany Factory Orders fell a worse-than-expected 1.4% m/m in July after a 1.8% jump in June
    • The decline was driven by weaker demand in Brazil, China, and Russia
  • Swiss inflation fell to its lowest level since 1959, with the Consumer Price Index falling 1.4% y/y in August (-0.2% m/m)
  • The eurozone's Retail Purchasing Managers' Index dropped to 51.4 from 54.2 in August
  • Yield Check:
    • France, 10-yr OAT: -4 bps to 1.03%
    • Germany, 10-yr Bund: -4 bps to 0.68%
    • Greece, 10-yr note: -9 bps to 8.81%
    • Italy, 10-yr BTP: -3 bps to 1.89%
    • Portugal, 10-yr note: -4 bps to 2.52%
    • Spain, 10-yr ODE: -3 bps to 2.08%
    • U.K., 10-yr Gilt: -5 bps to 1.74%

 
9/4/2015
7:27:02 ET
10-Year:+8/32 2.13    GNMAs:     EUR/USD:1.1140    USD/JPY:119.11   

Traders Avoid Risk Ahead of Employment Report 

  • The overnight trade was decidedly risk-off with government bonds and safe-haven currencies rallying while global equities and oil declined. The Briefing.com consensus for Nonfarm Payrolls, to be released this morning, is 217K. Goldman is pointing out that the August NFP number has been revised up by an average of 79K over the past five years and that analyst estimates have overestimated job growth by an average of 30K. With such low reliability for the August number in what is already a highly volatile and revision-prone data series, it's hard to see how markets can develop a firm conclusion on the prospect of a September rate hike on this basis alone
  • Yield Check:
    • 2-yr: -1 bp to 0.69%
    • 5-yr: -2 bps to 1.46%
    • 10-yr: -3 bps to 2.13%
    • 30-yr: -3 bps to 2.90%
  • International News:
    • Germany Factory Orders fell a worse-than-expected 1.4% m/m in July after a 1.8% jump in June
      • Weaker demand from outside the eurozone drove the decline
    • In Japan, cash earnings saw nominal growth of 0.6% y/y in July versus expectations for a 2% jump. Wages fell 3% in June
    • Swiss inflation fell to its lowest level since 1959, with the Consumer Price Index falling 1.4% y/y in August (-0.2% m/m)
    • The eurozone's Retail Purchasing Managers' Index dropped to 51.4 from 54.2 in August
      • The figures for Germany, France, and Italy all declined and only Germany's retail sector remains in expansion
    • Hong Kong's Manufacturing PMI fell to 44.4 in August from 48.2 in July
      • The subcomponent that measures orders from mainland China fell to its lowest level in over six years
  • Data Out Today:
    • August Employment Situation Report (08:30 ET)
  • Fed Speaker:
    • Richmond Fed President Lacker (FOMC voter) speaks on 'The Case Against Further Delay' (08:10 ET)

 
9/3/2015
3:40:50 ET
10-Year:+4/32 2.17    GNMAs:     EUR/USD:1.1128    USD/JPY:119.86   

Treasuries Gain on Risk Aversion 

  • U.S. Treasuries rallied today after U.S. equities halted their 24-hour rally begun on Wednesday afternoon and WTI crude reversed over $2.50 from its high. European sovereigns rallied earlier in the day on ECB President Draghi's remarks at the press conference following the ECB rate decision. Mario Draghi said that the ECB would stand ready to provide more policy accommodation if financial and economic conditions warrant. The ISM Services PMI for the U.S. beat expectations in August
  • Yield Check:
    • 2-yr: -2 bps to 0.70%
    • 5-yr: -2 bps to 1.49%
    • 10-yr: -2 bps to 2.17%
    • 30-yr: -1 bp to 2.95%
  • News:
    • The ISM Non-Manufacturing Index declined to 59.0 in August from 60.3 in July. The Briefing.com consensus was for 58.4
      • Production growth softened as the related index fell to 63.9 in August from 64.9 in July. Despite the small pullback, there is no question that underlying production trends still remain very strong. The New Orders Index fell to 63.4 in August from 63.8 in July. Backlogs accelerated as the related index increased by 2.5 points to 56.5
    • Initial Jobless Claims rose to 282K for the week ended August 29 from a downwardly-revised 270K (from 271K) for the week ended August 22. The Briefing.com consensus was for 273K
      • Continuing Jobless Claims fell to 2.257 mln for the week ended August 22 from a downwardly revised 2.266 mln (from 2.269 mln) for the week ended August 15. The consensus expected 2.261 mln
    • The U.S. trade deficit narrowed to $41.9 bln in July from an upwardly-revised $45.2 bln ($43.8 bln) in June. The Briefing.com consensus expected the trade deficit to decline to $42.7B
    • The ECB met and kept its policy rates unchanged
      • ECB President Mario Draghi gave a press conference half an hour after the rate decision was announced
        • He emphasized that the ECB stands willing and able to provide more monetary stimulus if warranted
        • The ECB staff revised down their forecasts for inflation and growth
        • The tangible result of the meeting was that the 25% limit on any country's total debt that the ECB is allowed to buy has been increased to 33%
        • European sovereign debt soared on the news. Treasuries and U.S. equities also rallied, but they gave back their gains rather quickly
  • Commodities:
    • WTI crude: +1.30% to $46.85/bbl.
    • Gold: -0.83% to 1,124.20/troy oz.
    • Copper: +1.91% to $2.734/lb. 
  • Currencies:
    • EUR/USD: -0.81% to $1.1126
    • USD/JPY: -0.59% to 119.90
  • Data Out Friday:
    • RichmondFed President Lacker (FOMC voter) speaks on 'The Case Against Further Delay'(08:10 ET)
    • August Employment Situation Report (08:30 ET)