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Update: 2016-09-23 15:55:19 ET

Moving the Market
  • Canada's Core Retail Sales for July: -0.1% m/m, 0.5% expected 
  • Crude falls to session low, now down 2.94% to $44.94/bbl.
  • Reuters says that six sources on or close to the ECB Governing Council think tweaks to the asset purchase program will be modest
  • Philadelphia Fed President Harker (FOMC voter in 2017): U.S. economy is not overheating and the Fed can be patient on rate hikes

9/23/2016
3:11:48 ET
10-Year:+3/32 1.61    GNMAs:     EUR/USD:1.1232    USD/JPY:101.09   

Yield Curve Steepens

  • The U.S. Treasury market rallied modestly today in a curve-steepening trade as the S&P 500 lost 0.41% to 2,168.2. Reuters reported that six members of the European Central Bank's Governing Council told the news agency that only modest tweaks to the ECB's asset purchase program are likely despite sluggish growth in the euro area. Treasuries and eurozone sovereign debt were little-changed after the news. A panel of Regional Fed Presidents Mester, Kaplan, and Lockhart yielded few statements of significant import. The New York Fed's Nowcast for Q3 GDP growth is now down to 2.3% and the Q4 estimate is 1.2%. The U.S. Dollar Index is up 0.02% to 95.47
  • Yield Check:
    • 2-yr: -2 bps to 0.75%
    • 5-yr: -1 bp to 1.15%
    • 10-yr: -1 bp to 1.61%
    • 30-yr: unch at 2.34%
  • News:
    • Six members of the European Central Bank's Governing Council told Reuters that any shift in the EUR80 bln/month asset purchase program is likely to be modest, according to Reuters
    • The Federal Reserve Bank of New York Staff Nowcast for Q3 GDP growth fell to 2.3% from 2.8% previously and the FRBNY Staff Nowcast for Q4 fell to 1.2% from 1.7% previously. According to the report, "The largest negative contributions over the last two weeks came from manufacturing, retail sales, and housing and construction data."
    • In the U.S., the flash reading for Markit's manufacturing purchasing managers' index fell more than expected in September to 51.4 from 52.0
    • Dallas Fed President Robert Kaplan said that the U.S. economy is not overheating and that the Fed can be patient on rate hikes
  • Commodities:
    • WTI crude: -3.28% to $44.80/bbl.
    • Gold: -0.21% to $1,341.9/troy oz. 
    • Copper: +0.39% to $2.203/lb.
  • Currencies:
    • EUR/USD: +0.20% to 1.1232
    • USD/JPY: +0.24% to 101.09
  • Week Ahead:
    • Monday: Minneapolis Fed President Kashkari (voter in 2017)(09:30 ET); August New Home Sales (10:00 ET); $26 bln 2-year Treasury auction(results at 13:00 ET); Dallas Fed President Kaplan (voter in 2017) (13:30 ET)
    • Tuesday: July Case-Shiller 20-city Index (09:00 ET);September Consumer Confidence (10:00 ET); $34 bln 5-year Treasury auction(results at 13:00 ET)
    • Wednesday: MBA Mortgage Index for the week ending 9/24(07:00 ET); Durable Goods Orders and Durable Goods Orders ex-transportation(08:30 ET); Minneapolis Fed President Kashkari (voter in 2017) (08:45 ET); St.Louis Fed President Bullard (FOMC voter) (10:15 ET); Crude Inventories for the weekending 9/24 (10:30 ET); $28 bln 7-year Treasury auction (results at 13:00 ET);Chicago Fed President Evans (voter in 2017) (13:30 ET); Cleveland Fed PresidentMester (FOMC voter) (16:35 ET); Kansas City Fed President George (FOMC voter) (19:15ET)
    • Thursday: Philadelphia Fed President Harker (voter in 2017) (05:00ET); Q2 GDP and GDP Deflator - Third Estimate (08:30 ET); Initial JoblessClaims for the week ending 9/24 and Continuing Jobless Claims for the weekending 9/17 (08:30 ET); August International Trade in Goods (08:30 ET); AtlantaFed President Lockhart (non-FOMC voter) (08:50 ET); August Pending Home Sales(10:00 ET); Fed Governor Powell (FOMC voter) (10:00 ET); Natural Gas Inventoriesfor the week ending 9/24 (10:30 ET); Kansas City Fed President George (FOMCvoter) (16:15 ET); Fed Chair Yellen (FOMC voter) (17:10 ET)
    • Friday: August Personal Income and Spending (08:30 ET);August Core PCE Prices (08:30 ET); September Chicago PMI (09:45 ET); SeptemberMichigan Sentiment - Final (10:00 ET)

 
9/23/2016
2:49:19 ET
10-Year:unch 1.62    GNMAs:     EUR/USD:1.1232    USD/JPY:101.10   

Dollar Wavers, Commodity Currencies Slide

  • The U.S. Dollar Index is up 0.03% to 95.48 as the British pound, Canadian dollar and kiwi dollar fell and the euro rallied. The big economic news out today was a surprisingly weak Markit Composite PMI for the eurozone. The measure of activity in both the service and manufacturing sectors fell to its lowest level since January 2015. There are mis-measurement risks that are particular to activity surveys and the German Ifo survey showed relative strength in services relative to manufacturing, so it is not clear how economic growth is really faring in the single currency bloc. FX traders shrugged off the news to bid the euro higher for the day. Weakness in commodity markets weighed on the Canadian and kiwi dollars
  • EUR/USD: +0.19% to 1.1231
    • The Markit Composite PMI for the eurozone fell more than expected to a 20-month low of 52.6 in September from 52.9 in August
      • The services purchasing managers' index unexpectedly fell to 52.1 from 52.8
      • The manufacturing PMI jumped to 52.6 from 51.7, beating consensus expectations
    • France's GDP fell 0.1% q/q in the second quarter, according to a preliminary estimate
    • Spanish producer prices fell 3.1% y/y in August, the slowest decline since December 2015
  • GBP/USD: -0.95% to 1.2959
  • USD/CHF: +0.06% to 0.9695
  • USD/JPY: +0.22% to 101.06
    • Japan's manufacturing PMI unexpectedly jumped to 50.3 for September from 49.5 in August
    • Japan's All Industries Activity Index rose 0.3% m/m in July, beating both expectations but slowing from June's 1.0% jump
  • USD/CNY: +0.09% to 6.669
  • USD/TRY: +0.39% to 2.954
  • USD/CAD: +0.95% to 1.3171
    • Retail sales in Canada fell 0.1% m/m in July, missing expectations
      • Core retail sales also fell 0.1% m/m in July, also missing expectations
    • Canada's consumer price index fell 0.2% m/m in August while the core CPI was unchanged. Both measures of inflation missed economists' forecasts
  • AUD/USD: -0.40% to 0.7617
  • NZD/USD: -1.10% to 0.7233

 
9/23/2016
2:15:05 ET
10-Year:+2/32 1.61    GNMAs:     EUR/USD:1.1236    USD/JPY:101.01   

Long Bond Retreats a Bit Despite Stock Slide

  • The Treasury market is pulling back somewhat from session highs this afternoon as the S&P 500 deepens its loss to 0.55% at 2,165.1. Looking forward to next week, the Treasury will auction a total of $88 bln of 2, 5, and 7-year Treasury notes. The U.S. economic data highlights are durable goods orders as well as personal income and spending for August. There is a raft of Fed speakers including rare appearances from Chicago Fed President Evans and Fed Governor Powell. Fed Chair Yellen is set to speak Thursday evening
  • The U.S. Dollar Index is up 0.02% to 95.47 and gold is down 0.33% to $1,340.2/troy oz.
  • WTI crude is down 3.91% to $44.51/bbl. 
  • CORRECTION: We earlier said that the Atlanta Fed's GDPNow model forecast and the NY Fed's "nowcast" forecast for Q3 were revised down. The Atlanta Fed's model forecast has not been changed. The FRBNY Staff Nowcast for Q3 fell to 2.3% from 2.8% previously and the FRBNY Staff Nowcast for Q4 fell to 1.2% from 1.7% previously. According to the report, "The largest negative contributions over the last two weeks came from manufacturing, retail sales, and housing and construction data."
  • Yield Check:
    • 2-yr: -2 bps to 0.75%
    • 5-yr: -2 bps to 1.15%
    • 10-yr: -1 bp to 1.61%
    • 30-yr: unch at 2.34%

 
9/23/2016
1:21:29 ET
10-Year:+2/32 1.61    GNMAs:     EUR/USD:1.1236    USD/JPY:100.98   

Treasuries Rally Slightly as Stocks Dip

  • The U.S. Treasury market is meandering around with some modest gains this afternoon as the panel of regional Fed presidents has produced no remarks worthy of mention from policymakers. We noted earlier that a Reuters report showed that six members of the European Central Bank's Governing Council said that the ECB is unlikely to made big changes to its asset purchase program. This sounded very significant to us, but it could very well be just an attempt by a small minority of the 25-member Governing Council to sway the public debate. We view the ECB's EUR80 bln/month asset purchase program as very significant to the record lows for Treasury yields despite a lack of financial flows westward across the Atlantic. Perhaps it will take more decisive remarks from the ECB's Excecutive Board to create serious concern in fixed-income markets about tapering of the asset purchase program
  • The S&P 500 is down 0.43% to 2,167.9 (near the session low) and WTI crude is down 4.17% to $44.39/bbl.
  • The U.S. Dollar Index is unchanged at 95.44 and gold is down 0.16% to $1,342.5/troy oz.
  • Yield Check:
    • 2-yr: -2 bps to 0.75%
    • 5-yr: -1 bp to 1.15%
    • 10-yr: -1 bp to 1.61%
    • 30-yr: unch at 2.33%

 
9/23/2016
12:15:44 ET
10-Year:+1/32 1.62    GNMAs:     EUR/USD:1.1231    USD/JPY:100.99   

Treasuries and Bunds Unmoved by ECB Rumors

  • Six members of the European Central Bank's Governing Council told Reuters that any shift in the EUR80 bln/month asset purchase program is likely to be modest, according to ReutersThis sounds big to us, but rates are totally unaffected
    • Excerpts:
      • "What is the actual benefit from a rate cut? Who is going to consume or invest more because of 0.1 percent?" said another Governing Council member. "But the signal to banks would be quite damaging."
      • "Markets are getting ahead of themselves, again, and forget that monetary policy doesn't follow markets," a Governing Council member said.
      • "The program is facing some constraints and I think by the time we need to make a decision, the constraints should be out of the way," a third policymaker said. "But the debate about extending QE really is open."
    • The market is reacting as if this is just a political move from a minority of the 25-member council
  • Yield Check:
    • 2-yr: unch at 0.77%
    • 5-yr: unch at 1.17%
    • 10-yr: unch at 1.62%
    • 30-yr: +1 bp to 2.34%

 
9/23/2016
11:27:47 ET
10-Year:unch 1.62    GNMAs:     EUR/USD:1.1228    USD/JPY:100.97   
Treasuries Consolidate Thursday's Gains
  • Treasuries are holding steady late this morning and the S&P 500 is down 0.29% to 2,170.9. The U.S. Dollar Index is up 0.02% to 95.47 and gold is down 0.11% to $1,343.2/troy oz. WTI crude is down 0.86% to $45.92/bbl.
  • The probability of a Fed rate hike at the November meeting is 15%, according to the CME website. The cumulative probability of a rate hike by year-end is down to 55% from 58% on Thursday
  • The Atlanta Fed's GDPNow model forecast for Q3 U.S. growth is down to 2.3% from 2.9% previously
  • The New York Fed's GDP growth forecast for Q3 is down to 1.2% from 1.7% previously
  • Yield Check:
    • 2-yr: unch at 0.77%
    • 5-yr: unch at 1.16%
    • 10-yr: unch at 1.62%
    • 30-yr: +1 bp to 2.35%
  • U.S. Dollar Index (Daily): Here's our (somewhat convoluted) chart of the U.S. Dollar Index. You can see that it's been finding resistance at its 200-day moving average since August but continues to hold the uptrend that it touched on Thursday. Much money has been lost trying to pick the break-out direction -- God knows we've tried -- but those are the levels to watch

 
9/23/2016
10:46:14 ET
10-Year:unch 1.62    GNMAs:     EUR/USD:1.1211    USD/JPY:101.04   

Markets Await Fed Speakers

  • U.S. Treasuries are trading a touch lower at the moment as the S&P 500 loses 0.25% at 2,171.7. The U.S. Dollar Index is up 0.14% to 95.58 and gold is down 0.16% to $1,342.5/troy oz. WTI crude is down 0.45% to $46.11/bbl.
  • Still ahead today are public appearances for three regional Fed presidents: Cleveland Fed President Mester (FOMC voter), Philadelphia Fed President Harker (non-FOMC voter), Atlanta Fed President Lockhart. Loretta Mester dissented in Wednesday's 7-3 FOMC decision to hold rates steady, so her remarks are unlikely to move markets, particularly given that little U.S. economic data has been released since then. Patrick Harker will vote in 2017, so his remarks will probably be the most important. Lastly, Dennis Lockhart will be stepping down from his role early in 2017, so his opinions are mostly irrelevant
  • At the end of a week filled with central bank activity, the U.S. Treasury yield curve is lower and flatter. The economic data for the U.S. was weaker than expected, with housing starts, building permits, and existing home sales all missing expectations for August. Leading indicators were soft too. Until the September jobs report and ISM surveys are released, it may make more sense to focus on the European economic data because that is what will determine the future of monetary policy at the European Central Bank. The ECB's asset purchase program is likely having a significant depressing effect on Treasury yields. Francois Villeroy said today that "nominal interest rates are now probably close to the low point," but he is only one member of the ECB's Governing Council. Sharp weakness in the European data might prompt the ECB to reduce its deposit rate (currently -0.40%) although damage to banks from negative interest rate policy (NIRP) is moving up the list of concerns for policymakers
  • Yield Check:
    • 2-yr: unch at 0.77%
    • 5-yr: unch at 1.17%
    • 10-yr: unch at 1.62%
    • 30-yr: +1 bp to 2.34%

 
9/23/2016
9:56:34 ET
10-Year:unch 1.62    GNMAs:     EUR/USD:1.1223    USD/JPY:100.90   

Treasuries Pull Back into Ranges

  • Treasuries are pulling back from their best levels of this morning as the S&P 500 declines 0.26% to 2,171.4. The U.S. Dollar Index is up 0.08% to 95.52 and gold is down 0.10% to $1,343.4/troy oz. WTI crude is down 0.24% to $46.21/bbl.
  • Today's stream of softer foreign economic data continues with Canadian retail sales falling 0.1% m/m in July (core retail sales were down 0.1% too)
  • In the U.S., the flash reading for Markit's manufacturing purchasing managers' index fell more than expected in September to 51.4 from 52.0. The August ISM Manufacturing and Non-Manufacturing Indices were both quite weak, so investors will watch the September surveys very closely to be sure that the August readings were just aberrations 
  • The People's Bank of China has been using 14-day and 28-day (rather than 7-day) reverse repos to inject liquidity into China's money markets and this has tightened financial conditions. Given the use of short-term borrowing to finance purchases of corporate debt in China, this poses a risk to the country's bond market. More from Bloomberg
  • Yield Check:
    • 2-yr: unch at 0.78%
    • 5-yr: unch at 1.17%
    • 10-yr: unch at 1.62%
    • 30-yr: +1 bp to 2.34%
  • 30-Year Yield (Daily):

 
9/23/2016
9:08:45 ET
10-Year:+4/32 1.61    GNMAs:     EUR/USD:1.1206    USD/JPY:101.04   

Traders Wait on Fed Speakers at Noon

  • Treasuries are beginning today's session in positive territory as the S&P 500 gets set to open down 0.18% to 2,173.1. Again, the eurozone purchasing managers' index fell to a 20-month low in September, according to preliminary data. This is only survey data and it's one month, but it isn't encouraging. The U.S. Dollar Index is up 0.04% to 95.49 and gold is down 0.13% to $1,343/troy oz. WTI crude is down 0.39% to $46.14/bbl.
  • Boston Fed President Rosengren released this statement today, justifying his dissent in Wednesday's 7-3 FOMC decision to hold the Fed funds target range at 0.25-0.50%
    • I am arguing for modest, gradual tightening now, out of concern that not doing so today will put the recovery's duration and sustainability at greater risk, by generating the sorts of significant imbalances that historically have led to a recession.
  • Yield Check:
    • 2-yr: -1 bp to 0.77%
    • 5-yr: -1 bp to 1.15%
    • 10-yr: -1 bp to 1.61%
    • 30-yr: -1 bp to 2.33%

 
9/23/2016
8:40:59 ET
10-Year:+2/32 1.61    GNMAs:     EUR/USD:1.1228    USD/JPY:100.73   

Greek and Portuguese Bonds Rally, Eurozone Core Declines

  • Eurozone sovereign yields are mixed this morning as purchasing managers' index data that indicated the slowest economic growth since January 2015 was not enough to extend Thursday's massive rally. The weakness in Germany's services sector was particularly pronounced, but analysts noted that the Ifo survey showed strength in services relative to the manufacturing sector. Such conflicting signals are a reason to be skeptical about both of the reports 
  • Central Banks:
    • European Central Bank Governing Council member Francois Villeroy said that "nominal interest rates are now probably close to the low point, which doesn't imply they will rebound soon"
    • European Central Bank Governing Council member Vitor Constancio said that he had hoped that the eurozone economy would have responded more quickly to monetary easing. Constancio also said that markets have conviction that low growth will persist for a long period. 
  • Economic Data:
    • The Markit Composite PMI for the eurozone fell more than expected to a 20-month low of 52.6 in September from 52.9 in August
      • The services purchasing managers' index unexpectedly fell to 52.1 from 52.8
      • The manufacturing PMI jumped to 52.6 from 51.7, beating consensus expectations
    • France's Markit Composite PMI jumped to a 15-month high of 53.3 from 51.9, far surpassing analyst expectations
      • France's services PMI unexpectedly jumped to 54.1 from 52.3
      • France's manufacturing PMi rose more than expected to 49.5 from 48.3
    • Germany's Markit Composite PMI fell to 52.7, its lowest level since May 2015
      • Germany's services PMI unexpectedly fell to 50.6 from 51.7
      • Germany's manufacturing PMI unexpectedly climbed to 54.3 from 53.6
  • Yield Check:
    • France, 10-yr OAT: unch at 0.21%
    • Germany, 10-yr Bund: +1 bp to -0.09%
    • Greece, 10-yr note: -4 bps to 8.31%
    • Italy, 10-yr BTP: +1 bp to 1.20%
    • Portugal, 10-yr PGB: -4 bps to 3.36%
    • Spain, 10-yr ODE: +2 bps to 0.94%
    • U.K., 10-yr Gilt: +1 bp to 0.62%

 
9/23/2016
7:41:52 ET
10-Year:+4/32 1.61    GNMAs:     EUR/USD:1.1216    USD/JPY:100.81   

Treasuries Hold Thursday's Gains Overnight

  • U.S. Treasuries are near 10-day highs this morning after the eurozone PMIs showed that economic activity in the single currency bloc is growing at its slowest pace in almost two years.  Global equities went into risk-off mode too and the S&P 500 is set to open down 0.26% to 2,171.3. There is no U.S. economic data on the calendar today but a few regional Fed presidents are set to speak around noon. WTI crude is down 0.30% to $46.18/bbl. while the U.S. Dollar Index is down 0.01% at 95.44. Gold is 0.23% lower at $1,341.6/troy oz.
  • Yield Check:
    • 2-yr: unch at 0.77%
    • 5-yr: -1 bp to 1.16%
    • 10-yr: -1 bp to 1.61%
    • 30-yr: -1 bp to 2.33%
  • International News:
    • Japan's manufacturing PMI unexpectedly jumped to 50.3 for September from 49.5 in August
      • Japan's All Industries Activity Index rose 0.3% m/m in July, beating both expectations but slowing from June's 1.0% jump
    • The Markit Composite PMI for the eurozone fell more than expected to 52.6 in September from 52.9 in August. September's print was a 20-month low
      • The services purchasing managers' index unexpectedly fell to 52.1 from 52.8
      • The manufacturing PMI jumped to 52.6 from 51.7, beating consensus expectations
      • In the national breakdown, France's Markit Composite PMI jumped to a 15-month high of 53.3
        • Germany's Markit Composite PMI fell to 52.7, its lowest level since May 2015. The weakness was led by the service sector
    • France's GDP fell 0.1% q/q in the second quarter, according to a preliminary estimate
    • Spanish producer prices fell 3.1% y/y in August, the slowest decline since December 2015
  • Fed Speakers Today:
    • Regional Fed presidents panel with Cleveland Fed President Mester (FOMC voter), Philadelphia Fed President Harker (non-FOMC voter), Atlanta Fed President Lockhart (set to retire) (12:00 ET)

 
9/22/2016
3:11:31 ET
10-Year:+7/32 1.63    GNMAs:     EUR/USD:1.1201    USD/JPY:100.86   

Treasuries Reverse Some Gains in Afternoon Trades

  • U.S. Treasuries finished the session mostly higher but well off of their best levels as traders digested Wednesday's interest rate policy decisions from the Fed and the Bank of Japan. The existing home sales data for August was slightly weaker than expected and the CB Leading Indicators disappointed analyst forecasts too. Initial and continuing jobless claims remain near historic lows. Globally, equity prices surged higher and the S&P 500 now trades up 0.64% to 2,176.8. The U.S. Dollar trades down 0.23% to 95.44 after touching 95.05 early this morning
  • Yield Check:
    • 2-yr: +1 bp to 0.78%
    • 5-yr: -1 bp to 1.18%
    • 10-yr: -3 bps to 1.63%
    • 30-yr: -2 bps to 2.35%
  • News:
    • U.S. existing home sales slowed to a 5.33M seasonally adjusted annualized rate in August from 5.38M in July. The Briefing.com consensus was for 5.50M
      • The 5.33M SAAR was down 0.9% m/m and up 0.8% y/y 
      • The Northeast saw the only growth of the four regions (6.1%)
      • First-time buyers accounted for 31% of sales in August versus 32% in July and a year ago
      • Despite low mortgage rates, limited inventory and high prices continue to restrict existing home sales activity
    • The Conference Board's index of leading indicators fell 0.2% m/m in August, missing the Briefing.com consensus for a 0.1% gain and reversing some of July's 0.4% 
      • Positive contributions from the financial components were more than offset by large negative contributions from average weekly manufacturing hours and new orders.
    • The FHFA Housing Price Index rose 0.5% m/m in July after climbing 0.2% in June
    • Initial jobless claims fell to 252K for the week ending 9/17 from the prior reading of 260K. The Briefing.com consensus was for 262K initial claims
      • Continuing jobless claims fell to 2113K for the week ending 9/10 from 2149K
  • Commodities:
    • WTI crude: +1.99% to $46.24/bbl.
    • Gold: +0.74% to $1,341.2/troy oz.
    • Copper: +1.67% to $2.191/lb.
    • Natural gas: -2.32% to $2.986/mbtu
      • Natural gas inventories reportedly grew by 52 bln cubic feet in the week ending September 17, in line with expectations
  • Currencies:
    • EUR/USD:+0.13% to 1.1203
    • USD/JPY: +0.53% to 100.84
  • Fed Speakers for Friday:
    • Regional Fed presidents panel with Cleveland Fed PresidentMester (FOMC voter), Philadelphia Fed President Harker (non-FOMC voter),Atlanta Fed President Lockhart (set to retire) (12:00 ET)