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Update: 2014-08-29 15:55:13 ET

Moving the Market

Personal Income: Actual 0.2%, consensus 0.3%, prior 0.4% (revised 0.5%)

Personal Spending: Actual -0.1%, consensus 0.1%, prior 0.4%

PCE Prices - Core: Actual 0.1%, consensus 0.1%, prior 0.1%

Chicago PMI: Actual 64.3, consensus 54.8, prior 52.6

Michigan Sentiment - Final: Actual 82.5, consensus 80.0, prior 79.2 

3:28:23 ET
10-Year:-02/32 2.345    GNMAs:     EUR/USD:1.3137    USD/JPY:104.05   
The Week in Review: Longer Dated Yields Hit Lowest Levels in Over a Year
  • Treasuries gained this week, supported by global growth concerns and uneasiness over the developments in Eastern Europe.
  • Disappointing data out of Germany sparked concerns the growth engine of Europe is beginning to falter. Yields across Europe pressed to record lows on speculation the European Central Bank will launch a QE-type program at next week's meeting. Notabale were comments from Bundesbank head Wolfgang Schaeuble pushing back against QE as he suggested the central bank is near the limit as to what is can do.
  • Ukraine President Petro Poroshenko accused Russia of putting boots on the ground in his country
  • Economic data in the U.S. was mixed. New home sales (412K actual v. 427K expected), durable orders -ex transportation (-0.8% actual v. 0.6% expected), Cash-Shiller 20-city Index (8.1% actual v. 8.3% expected), personal income (0.2% actual v. 0.3% expected), and personal spending (-0.1% actual v. 0.1% expected) all fell short of estimates while consumer confidence (92.4 actual v. 88.3 expected), GDP - Second Estimate (4.2% actual v. 4.0% expected), pending home sales (3.3% actual v. 0.5% expected), Chicago PMI (64.3 actual v. 54.8 expected), and Michigan Sentiment - Final (82.5 actual v. 80.0 expected) all beat. The Fed's preferred measure of inflation, PCE Prices - Core was in-line at 0.1%. 
  • This week's auctions were average
  • Tuesday's $29 bln 2y note auction drew 0.530% (WI 0.532%) and a strong 3.48x bid/cover. Indirect bids (39.8%) were well above their 12-auction average, and provided support at direct bids (12.1%) were light. Primary dealers were left with 48.1% of the supply. 
  • Wednesday's slightly better than average $35 bln 5Y note auction. The auction drew 1.646% and a solid 2.81x bid/cover. A strong indirect bid (52.7%) provided support as the direct bid (10.8%) was light. Primary dealers ended up with 36.5% of the supply. 
  • Thursday's average $29 bln 7Y note auction drew 2.045% and an in-line 2.57x bid/cover. Indirect (48.8%) and direct (20.4%) bids were close to their 12-auction averages, leaving primary dealers with just 30.8% of the supply. 
  • Up front, the 2Y eased -1bp to 0.484%. The yield continues to test the key 0.500% area. 
  • In the belly, the 5Y fell -5 bps to 1.628%. Action over the course of the week flirted with resistance in the 1.650% area that was guarded by both the 50 and 100 dma, but could not breakout. 
  • The 10Y shed -6bps to 2.343%. This week's buying dropped the benchmark yield to its lowest levels since June 2013
  • At the long end, the 30Y pressed lower by -6bps to 3.080%. The yield on the long bond pressed to levels last seen in May 2013. 
  • This week's action flattened the yield curve as  the 2-10-yr spread tightened to 186bps.  
The Week Ahead
  • Markets are closed Monday in observance of Labor Day
  • Tuesday will see ISM Index and construction spending (10) cross the wires. 
  • Wednesday's data includes the weekly MBA Mortgage Index (7), factory orders (10), the Fed's Beige Book, and auto/truck sales (14). 
  • Data picks up on Thursday with Challenger Job Cuts (7:30), ADP Employment Change (8:15), initial and continuing claims, the trade balance, productivity-rev., unit labor costs (8:30), and ISM Services (10). Cleveland's Mester discusses her economic outlook and monetary policy (12:30), Fed Governor Powell speaks at a Money Marketeers of New York City dinner (18:15), and Minny's Kocherlakota participates in a town hall discussion (21).
  • Friday's data is the most anticipated of the week as nonfarm payrolls, nonfarm private payrolls, the unemployment rate, hourly earnings, and average workweek (8:30) are scheduled for release. Boston's Rosengren participates in a bankers' conference (15:45).

2:16:54 ET
10-Year:+01/32 2.331    GNMAs:     EUR/USD:1.3140    USD/JPY:104.08   
Dollar Flirts with Best Close in 14 Months:
  • The Dollar index presses session highs near 82.70 as trade contends with its best close in 14 months. 
  • EURUSD is -40 pips @ 1.3140 as action tests its lowest levels in a year. The single currency has been pushed lower following reports EU members will meet this weekend to discuss further sanctions against Russia. Of course the implementation of further sanctions are likely to lead to a retaliation against the region, and growth is likely to suffer. Traders have also made note of comments out of Germany's Bundesbank, which suggested the European Central Bank is nearing its limits of what it can do to combat the slowdown in the region. Eurozone data due out Monday includes Italian and Spanish Manufacturing PMI. 
  • GBPUSD is -15 pips @ 1.6575 as sellers look to regain control following two days of gains. Sterling saw an early test of the 1.6600 level following the better than expected Nationwide Home Price Index, but was once again rebuffed at the level. Britain's Manufacturing PMI and net lending to individuals will cross the wires on Monday. 
  • USDCHF is +30 pips @ .9180 as trade contends with its best close since November. Traders remain more interested in the EURCHF, which is holding near its worst levels since November 2012.
  • USDJPY is +40 pips @ 104.10 as the mostly disappointing Japanese data as sparked another wave of buying. Any close above 104.10 will be the best since April. Japan's capital spending is due out Sunday evening. 
  • AUDUSD is -20 pips @ .9335 as trade has surrendered all of yesterday's gains. The hard currency has been offered from the get go as sellers stepped in to defend resistance guarded by both the 50 and 100 dma. Australian data scheduled for Sunday is limited to company operating profits. China's Manufacturing PMI and HSBC Final Manufacturing PMI will be released Sunday evening
  • USDCAD is +10 pips @ 1.0870 as trade has recoued all of the early losses. The pair pressed down to the key 1.0810 level after the better than expected Canadian GDP (0.3% MoM actual v. 0.2% MoM expected) before buyers stepped in to defend support and the 50 dma. Canadian banks are closed on Monday in observance of Labor Day.

12:31:50 ET
10-Year:unch 2.336    GNMAs:     EUR/USD:1.3145    USD/JPY:104.05   
Afternoon Update: 2Y +01/32 @ 100 00/32...3Y +01/32 @ 99 26/32...5Y +01/32 @ 99 31/32...7Y -01/32 @ 99 23/32...10Y unch @ 100 10/32...30Y +01/32 @ 101 01/32...EURUSD -40 pips @ 1.3145..GBPUSD -5 pips @ 1.6585...USDJPY +35 pips @ 104.05...USDCHF +25 pips @ .9175...AUDUSD -15 pips @ .9340...USDCAD +10 pips @ 1.0870
11:55:23 ET
10-Year:-02/32 2.343    GNMAs:     EUR/USD:1.3152    USD/JPY:103.94   
Treasuries Drift Little Changed:
  • Treasuries have given up their recent gains and now hover little changed. 
  • A choppy trade has been in place throughout the U.S. session with yields locked in a tight 2bp range. 
  • Outperformance up front has the 2Y -1.2bps @ 0.492%.
  • A flat trade in the belly has the 5Y stuck @ 1.630%.
  • Light selling of longer dated maturities has the 10Y and 30Y higher by 0.7bps @ 2.341% and 3.089%, respectively.
  • A slightly steeper curve has developed as the 2-10-yr spread trades 185bps. 
  • Precious metals are mixed with gold -$2 @ $1288 and silver +$0.05 @ $19.59.

11:32:56 ET
10-Year:Unch 2.336%    GNMAs:     EUR/USD:1.3146    USD/JPY:103.93   
Jobs, Beige Book, ECB, BoE, PMIs Next Week: The Dollar Index is firmly bouncing off the 82.40 level. Some of the move is being attributed to a Tier 1 firm changing its target on the EURUSD to 1.20. The 82.40 is a strong support level for the DXY. Adding to the strength is better than expected economic data with the Chicago PMI being notable as it blew away expectations. Next week, the market will be focusing on the latest ISM number (Tue), Beige Book (Wed) and jobs data (Thu-Fri). 
  • The euro has slipped to a multi-month low as news of the target cut crosses desks. Inflation data in the region came in-line with expectations, but it remains weak (a 5-year low) and has plenty of investors nervous about the potential for disinflation. And the EONIA rates have dipped into negative territory for the first time in its history. Next week, the ECB is set to meet and participants will be eager to see what the next course of action is for the bank. But many are lowering expectations for any potential action. PMI numbers will greet market participants early Tuesday morning. 
  • The pound is running into resistance at the 1.6600 level as it attempts to bounce off multi-week lows. The Bank of England will be meeting next week, but no action is expected to be taken. The bigger interest will lie in the minutes when they are released in a couple of weeks. 
  • The yen continues its battle with the 104 level. A slew of data hit the wires overnight with the majority of participants viewing it as disappointing and painting a picture of a weak economy. This will lead to further actions by the Bank of Japan in coming weeks. However, 104 continues to hold as there is some safe haven buying propping up the currency.

9:59:38 ET
10-Year:-01/32 2.340    GNMAs:     EUR/USD:1.3174    USD/JPY:103.97   
Data Reaction II:
  • Treasuries raced to session highs following the strong Chicago PMI (64.3 actual v. 54.8 expected) number, and remain at those levels after Michigan Sentiment - Final (82.5 actual v. 80.0 expected) outpaced estimates
  • Early action has maturities hovering little changed.
  • A +0.4bp advance has the 10Y @ 2.338%.
  • The flat session has the 2-10-yr spread slightly steer @ 183.5bps.
  • Precious metals are mixed with gold -$4 @ $1286 and silver +$0.04 @ $19.57.

8:35:49 ET
10-Year:-02/32 2.344    GNMAs:     EUR/USD:1.3190    USD/JPY:103.94   
Data Reaction:
  • Treasuries are seeing some buying following the disappointing personal income (+0.2% actual v. +0.3% expected) and spending (-0.1% actual v. +0.1% expected) data
  • PCE Prices - Core were in-line at +0.1%
  • Maturities have erased their early losses and now little changed. 
  • A +0.3bp advance has the 10Y @ 2.341%.
  • A slightly steeper curve remains in play as the 2-10-yr spread trades 183.5bps.
  • Precious metals are mixed with gold -$4 @ $1286 and silver +$0.03 @ $19.56. 
  • Attention now turns to the Chicago PMI release at 9:45am ET.

8:03:29 ET
10-Year:-02/32 2.346    GNMAs:     EUR/USD:1.3190    USD/JPY:103.97   
European Yields:
  • Yields hover little changed across Europe.
  • Eurozone CPI Flash Estimate posted an in-line 0.3% YoY while the region's unemployment rate held at 11.5%.
  • German Bunds are off slightly following the retail sales (-1.4% MoM actual v. 0.1% MoM expected) miss. A +1bp advance has the 10Y at 0.900%. 
  • UK Gilts hold small losses after the stronger than anticipated Nationwide Home Price Index (0.8% MoM actual v. 0.1% MoM expected). The light selling has the 10Y +2bps @ 2.275%.
  • French OATs are lower amid a quiet trade. Light selling has the 10Y +1bp @ 1.260%.
  • Italian BTPs are slipping following after the unemployment rate jumped to 12.6% (12.3% previous) and Q2 Final GDP was revised down to -0.2% QoQ (-0.1% QoQ expected). A +1bp advance has the 10Y @ 2.440%.
  • Spanish Bonos are firm. The 10Y is lower by -1bp @ 2.225%.

7:23:34 ET
10-Year:-02/32 2.343    GNMAs:     EUR/USD:1.3182    USD/JPY:103.93   
USDJPY Nears 104.00:
  • The Dollar Index holds little changed near 82.50. 
  • The greenback saw early buying provide a test of the 821.60 level, but trade has surrendered those gains over the course of the morning. 
  • EURUSD is +5 pips @ 1.3190 amid a choppy trade. The single currency withstood some early selling pressure following the German retail sales (-1.4% MoM actual v. 0.1% MoM expected) miss as the recent lows above 1.3150 were able to hold, and has rallied into positive territory following the in-line eurozone CPI Flash Estimate (0.3% YoY). The region's unemployment rate was also released, holding at 11.5%. 
  • GBPUSD is +5 pips @ 1.6595 as light buying persists for a third day. A stronger than expected Nationwide Home Price Index (0.8% MoM actual v. 0.1% MoM expected) has sterling yet again testing the 1.6600 level that has acted as a ceiling on action for more than the past week. A breakout above the level puts 1.6700 and the 200 dma in play. 
  • USDCHF is -5 pips @ .9145 as trade continues to hold near nine-month highs. Today's strong KOF Economic Barometer (99.5 actual v. 97.9 expected, 97.9 previous) has had little impact on trade as traders are more interested in EURCH holding at 1.2060, the lowest since December 2012. 
  • USDJPY is +25 pips @ 103.95 as buyers regain control following two days of selling. Today's advance comes after more disappointing data out of Japan. Household spending dropped -5.9% YoY (-2.7% YoY expected) while preliminary industrial production advanced just 0.2% MoM (1.2% MoM expected). Tokyo Core CPI was in-line at 2.7% YoY while retail sales was the lone beat, advancing +0.5% YoY (-0.1% YoY expected). Any close above 104.10 would be the best since January.
  • AUDUSD is -15 pips @ .9340 as trade pulls back from one-month highs. The hard currency has seen sellers emerge in defense of resistance that is guarded by both the 50 and 100 dma. USDCNY was flat @ 6.1423. 
  • USDCAD is -15 pips @ 1.0845 as trade contends with its lowest close in a month. The 1.0820 area is defended by the 50 dma and will be watched closely into today's GDP and Raw Materials Price Index data.

6:59:06 ET
10-Year:-01/32 2.343    GNMAs:     EUR/USD:1.3185    USD/JPY:103.95   
Treasuries Slip in Early Trade:
  • Light selling has Treasury yields firm ahead of the cash open. 
  • Overnight action held in its usual 3bp range. Up front, the 2Y holds +0.4bps @ 0.508% as action continues to test resistance in the area.
  • In the belly, the 5Y is +0.4bps @ 1.635%. Resistance in the 1.650% area is defended by both the 50 and 100 dma and remains under close watch. 
  • The 10Y trades +1.1bps @ 2.345%. Early selling has the benchmark yield ticking off its lowest close since June 2013. 
  • At the long end, the 30Y is +1bp @ 3.082%. The yield on the long bond finished yesterday's session at a 15-month low
  • A slightly steeper curve has developed with the 2-10-yr spread wider @ 183.5bps
  • Precious metals are lower with gold -$4 @ $1286 and silver -$0.09 @ $19.44. 
  • Data: Personal income and spending, PCE Prices - Core (8:30), Chicago PMI (9:45), and Michigan Sentiment - Final (9:55).

3:39:11 ET
10-Year:+03/32 2.337    GNMAs:     EUR/USD:1.3183    USD/JPY:103.66   
Treasuries Gain as Uneasiness in Eastern Europe Outweighs Strong Data:
  • Treasuries finished with modest gains, supported by accusations made by Ukraine President Petro Poroshenko that Russian troops have entered the eastern portion of his country.
  • The complex drifted little changed for much of the overnight session before an aggressive bid developed in response to the reports out of Eastern Europe. 
  • Maturities climbed to their best levels of the session as the reported Russian troop presence outweighed the upwardly revised Q2 GDP - Second Estimate (4.2% actual v. 4.0% expected, 4.0%, previous).
  • Action hovered near the highs into the strong pending home sales (+3.3% actual v. +0.5% expected) data before some selling emerged.
  • The weakness did not last long as action rallied back onto the highs ahead of the average $29 bln 7Y note auction
  • The auction drew 2.045% and an in-line 2.57x bid/cover. Indirect (48.8%) and direct (20.4%) bids were close to their 12-auction averages. Primary dealers ended up with just 30.8% of the supply. 
  • Post-auction selling pushed maturities to their worst level of U.S. trade, but buyers emerged in defense of those levels and sparked a rally into the cash close. 
  • Up front, the 2Y eased -1.2bps to 0.504%. The yield remains near key resistance in the 0.500% area. 
  • In the belly, the 5Y slipped -0.7bps to 1.631%. Traders continue to monitor resistance in the 1.650% area that is defended by both the 50 and 100 dma. 
  • The 10Y slid -2.7bps to 2.334%. The benchmark yield finished at its lowest level since June 2013.
  • At the long, the 30Y fell -3.7bps to 3.072%. Today's bid pushed action to its lowest levels since May 2013
  • A flatter curve developed as the 2-10-yr spread tightened to 183bps
  • Precious metals gained with gold climbing $9 to $1292 and silver firming $0.14 to $19.54. 
  • Data: Personal income and spending, PCE Prices - Core (8:30), Chicago PMI (9:45), and Michigan Sentiment - Final (9:55).

2:17:53 ET
10-Year:+03/32 2.342    GNMAs:     EUR/USD:1.3180    USD/JPY:103.73   
Dollar Firms Amid Choppy Trade:
  • The Dollar Index drifts on session highs near 82.50. 
  • A choppy trade for the greenback has kept action locked in a tight 15 cent range during U.S. trade. 
  • EURUSD is -15 pips @ 1.3180 as action continues to test the recent lows. The single currency has seen a relatively tame session considering the generally weak economic data from the region and reports of Russian troop movements in eastern Ukraine. Eurozone data expected tomorrow includes CPI Flash Estimate, the unemployment rate, and German retail sales. 
  • GBPUSD is +5 pips @ 1.6580 as trade looks to put in a second day of small gains. Early action produced yet another test of 1.6600, but a close above the level looks unlikely. Tomorrow's British data is limited to the Nationwide Home Price Index.
  • USDCHF is little changed near .9150. Traders have been more focused on EURCHF, which early this morning crossed below 1.2050 for the first time since December 2012. The Swiss National Bank's EURCHF1.20 floor will be in focus over the days ahead. Switzerland's KOF Economic Barometer will cross the wires tomorrow. 
  • USDJPY is -15 pips @ 103.70 as trade presses lower for a second session. The 103.60 area remains of interest as a breakdown puts the 103.00 level in play. Japan's household spending and Tokyo Core CPI, preliminary industrial production, and retail sales are due out tonight. 
  • AUDUSD is +15 pips @ .9350 as trade contends with its best close in a month. Today's advance comes after a strong private capital expenditure reading, and has action testing resistance in the area helped by both the 50 and 100 dma. 
  • USDCAD is -15 pips @ 1.0850 as sellers remain in control for a third straight day. The pair has been weak throughout U.S. trade despite Canada's current account balance posting a wider than anticipated deficit. Canada's GDP and Raw Materials Price Index are scheduled for tomorrow.