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Update: 2015-10-05 11:55:19 ET

Moving the Market
  • September ISM Services: Actual 56.9, forecast 58.0, Prior 59.0 
  • San FranciscoFed President Williams (FOMC voter) (17:30 ET)

11:50:04 ET
10-Year:-09/32 2.025%    GNMAs:     EUR/USD:1.1198    USD/JPY:120.33   

DXY Holding Below 96: The Dollar Index is trading just below but has yet to test the 96 level for resistance. The DXY has been under some pressure the past couple of days as U.S. economic data continues to disappoint and push back expectations for a rate hike. ISM Services was the latest number to miss today. It is not like the greenback has fallen off a cliff though, rather it is straddling a convergence of key moving averages here in the 95 area.

  • The euro is holding steady under the 1.13 area. European Services also failed to impress which will raise expectations that the ECB will expand its current QE purchase program later this month.
  • The pound is holding the 1.5150-75 area as it attempts to settle. The U.K. Services PMI also fell short of its expectations and it follows the pattern of the U.S. in which expectations for a tightening have been sidelined for the moment.
  • The yen has slipped back into the 120 level as we see risk on raise stocks and cause some selling of the yen. In general the currency remains in a tight range as investors await other central bankers to move. The Bank of Japan is set to meet on Tuesday night with markets expecting the central bank to provide more stimulus to the troubled economy.

11:27:05 ET
10-Year:-9/32 2.03    GNMAs:     EUR/USD:1.1217    USD/JPY:120.29   

Weak ISM Services Fails to Buoy Tplex

  • U.S. Treasury coupon securities are pushing lower this morning after the weakness in the ISM Non-Manufacturing Index has been offset by a generally positive attitude towards risk. Friday's release of September's employment report has moved market expectations for the first rate hike into 2016 and this has helped to support share prices and gold
  • Investor expectations for new corporate debt issuance is now $15-20 bln for this week and $80 bln for this month. There was $120 bln of issuance in September
  • The Eurogroup (the eurozone's national finance ministers) said today that the Greek government should rapidly implement economic reforms so that the Greek banking system can be recapitalized and negotiations can begin on debt restructuring
    • Greece's 10-year note yield is now 7.88% and its 2-year note yield is 9.9%. Those rates have more than halved since the peak of the crisis this summer
  • WTI crude remains up 2.24% to $46.55/bbl.
  • The U.S. Dollar Index is up 0.07% to 95.90
  • Yield Check:
    • 2-yr: +1 bp to 0.59%
    • 5-yr: +2 bps to 1.32%
    • 10-yr: +3 bps to 2.03%
    • 30-yr: +5 bps to 2.87%

10:31:00 ET
10-Year:-9/32 2.02    GNMAs:     EUR/USD:1.1212    USD/JPY:120.27   

Employment Component of ISM Services Rises

  • Treasuries remain lower on the session after the weaker-than-expected September ISM Services report. The yield curve is maintaining its steeper posture and stocks are pinned to their highs, with the S&P 500 now up 107 points from its 1,870 low last week
  • The ISM Non-Manufacturing Index fell to 56.9 in September from 59.0 in August. The consensus was for 58.0 
    • Although many of the sub-categories in the index showed sharp declines in September, there wasn't a prevalence of contractions like those that plagued the ISM Manufacturing Index. The services sector remains much more robust than the manufacturing sector
    • Business activities slowed as the related index fell to 60.2 in September from 63.9 in August. Growth in both new (56.7 from 63.4) and unfilled (54.5 from 56.5) orders slowed in September. Neither index, however, is in immediate danger of contracting
    • In a somewhat unusual note, the Employment Index increased to 58.3 in September from 56.0. That comes as the hard employment data showed a sizable slowdown in payroll gains
  • WTI crude remains within striking distance of highs, up 2.26% to $46.57/bbl.
  • The U.S. Dollar index is up 0.09% to 95.92
  • Gold is giving back early gains, now down 0.18% to $1,134.60/troy oz.
  • Yield Check:
    • 2-yr: +1 bp to 0.59%
    • 5-yr: +2 bps to 1.31%
    • 10-yr: +3 bps to 2.02%
    • 30-yr: +4 bps to 2.86%

9:54:34 ET
10-Year:-8/32 2.02    GNMAs:     EUR/USD:1.1214    USD/JPY:120.21   

Treasury Yields Push Higher 

  • The Treasury complex continues to lose ground this morning, with the 2-year note finally slipping into the red. The surge in risk assets from the post-NFP release low on Friday should tend to sap investor confidence that the Fed will wait until 2016 before hiking rates. This morning, investors were pricing in only a 32% chance of a hike by the end of the year
  • Bank of America Merrill Lynch is reducing its U.S. Q3 GDP growth forecast to 2% from 2.8%
    • The 2016 growth forecast was reduced to 2.7% from 3.0%
  • Bloomberg has a good graphic on the difference between economic conditions during previous initiations of rate hiking cycles by the Fed and economic conditions now
  • WTI crude is making another run at the upper end of its September range, now rallying 1.91% to $46.41/bbl.
  • The U.S. Dollar Index remains strong, up 0.10% to 95.92
  • The S&P 500 is up 1.10% to 1,972.88
  • Gold is up 0.41% to $1,140.30/troy oz.
  • Yield Check:
    • 2-yr:+1 bp to 0.60%
    • 5-yr: +2 bps to 1.31%
    • 10-yr: +3 bps to 2.02%
    • 30-yr: +5 bps to 2.87%

9:07:12 ET
10-Year:-5/32 2.01    GNMAs:     EUR/USD:1.1214    USD/JPY:120.21   

Bond Leads Tplex Lower

  • The U.S. Treasury complex is starting the week on a weaker footing with the 30-year bond leading the way. Friday's release of the September employment report sent yields dropping across the curve, the U.S. dollar sharply lower, and equities down too. The moves down in 30-year Treasury bond yields and stocks have now been entirely reversed, while much of the dollar's decline has been recovered as well. 2 and 5-year yields are holding lower and gold is maintaining some strong gains from Friday
  • Today's session is very light on data, with only the September ISM Non-Manufacturing Index due to be released. The consensus is for a reading of 58.0, down from 59.0 in August
  • WTI crude is up 1.73% to $46.31/bbl.
  • The U.S. Dollar Index is rising 0.07% to 95.90
  • S&P 500 futures are indicating an open for the index at 1,965.90 from a low on Friday around 1,892
  • Yield Check:
    • 2-yr: unch at 0.59%
    • 5-yr: +1 bp to 1.30%
    • 10-yr: +2 bps to 2.01%
    • 30-yr: +3 bps to 2.86%

8:23:37 ET
10-Year:-7/32 2.02    GNMAs:     EUR/USD:1.1237    USD/JPY:120.19   

Services PMI's Disappoint, Portuguese Election Results Ease Concerns

  • Portugal's center-right "Forward-Portugal" coalition took an estimated 38.6% of the vote in Sunday's election versus 32.4% for the opposition Socialists
    • While the coalition will retain power, it has lost its absolute majority
    • Pro-austerity European governments have had a difficult time being reelected in recent years, so this is an impressive victory
  • Services purchasing managers' indices across Europe showed decelerating growth (but still growth) in September
    • The U.K.'s initial "flash" reading for September was 53.3, down from 55.6 in August and confounding analyst expectations for a rise
      • New business growth was at a 29-month low, according to Markit
      • Employment growth was the best in three months
    • The September services PMI for the whole eurozone was revised down to 53.7 from an initial reading of 54.0. The August print was 54.4
      • The national figure for Germany was revised down to 54.1 from 54.3 after showing 54.9 in August, while France's was revised up to 51.9 from a flash reading of 51.2. France's services PMI was 50.6 in August
      • Spain's services PMI dropped to 55.1 in September from 59.6 in August, according to the initial estimate. Italy's declined to 53.3 in September from 54.6 in August
    • Eurozone retail sales were unchanged m/m in August after rising 0.4% in July
  • Yield Check:
    • France, 10-yr OAT: +2 bps to 0.84%
    • Germany, 10-yr Bund: +3 bps to 0.55%
    • Greece, 10-yr note: +8 bps to 8.04%
    • Italy, 10-yr BTP: -1 bp to 1.64%
    • Portugal, 10-yr note: +2 bps to 2.31%
    • Spain, 10-yr ODE: unch at 1.78%
    • U.K., 10-yr Gilt: +7 bps to 1.67%

7:29:25 ET
10-Year:-5/32 2.01    GNMAs:     EUR/USD:1.1228    USD/JPY:120.25   

Services PMI's Show Slower Global Growth 

  • The Treasury complex slipped lower overnight in a curve-steepening trade as the rally in risk assets that began on Friday has continued into the new week. The very poor September employment report has moved back market expectations for a rate hike and that has supported Treasury prices, particularly at the front end and belly of the curve. Services PMI's from Japan and the U.K. missed expectations for September while the eurozone's reading was revised down. Last week's flood of U.S. economic data will give way to a trickle this week, giving investors time to mull over the lasting effects of the slowdown in China and emerging markets
  • Yield Check:
    • 2-yr: unch at 0.59%
    • 5-yr: unch at 1.30%
    • 10-yr: +1 bp to 2.01%
    • 30-yr: +2 bps to 2.85%
  • International News:
    • Japan's Markit/Nikkei Services PMI printed 51.4 in September, down from 53.7 in August. That puts the composite PMI at 51.2 for September, a five-month low
      • New orders were weak and employment growth was strong
    • The U.K.'s services PMI unexpectedly fell to 53.3 in September from 55.6 in August
      • That marks the weakest quarter for the U.K.'s services sector since Q2 2013
    • The eurozone's services PMI was revised down to 53.7 for September from a prior estimate of 54.0. The final reading for August was 54.4
      • According to Markit, which produces the PMI surveys, September's reading is consistent with 0.4% GDP growth for the third quarter. Eurozone GDP grew 0.4% in Q2 and 0.5% in Q1
      • On a national basis, Germany's services PMI was revised down to 54.1 from a flash reading of 54.3, Italy's was finalized at 53.3 from 54.0, and France was upgraded to 51.9 from 51.2
    • Retail sales in the eurozone were unchanged m/m in August after rising 0.4% in July
  • Data Out Today:
    • September ISM Services (10:00 ET)
  • Fed Speaker:
    • San Francisco Fed President Williams (FOMC voter) (17:30 ET)

3:01:34 ET
10-Year:+15/32 1.98    GNMAs:     EUR/USD:1.1206    USD/JPY:120.09   

Treasuries Rally on Weak Employment Report 

  • The U.S. Treasury complex made massive gains this morning on the back of a categorically bad September employment report. The nonfarm payroll change missed the consensus (142K versus 205K), the August NFP number was revised down, and hourly earnings were flat versus the consensus for a gain of 0.2%. The release of the data sent Treasury yields, equities, and the U.S. dollar down sharply. Stocks and the dollar recovered by the end of the day, but Treasury yields remained much lower albeit well above their lows from the morning. WTI crude turned higher off of very bullish Baker Hughes rig count data
  • Yield Check:
    • 2-yr: -7 bps to 0.58%
    • 5-yr: -9 bps to 1.28%
    • 10-yr: -6 bps to 1.98%
    • 30-yr: -4 bps to 2.91%
  • News:
    • Nonfarm payrolls grew by only 142K in September versus the consensus of 205K. The change in payrolls for August was revised down to 136K from 174K
      • The unemployment rate stayed at 5.1%, in line with the consensus
      • Hourly earnings were flat from August versus the consensus for 0.2% growth. The August change was revised up to 0.3% growth from the initial reading of 0.2%
      • Nonfarm private payrolls grew by 118K versus the consensus of 200K
      • The average workweek fell to 34.5 from 34.6 in August. The consensus was also 34.6
    • Factory orders declined 1.7% in August after increasing a downwardly-revised 0.2% (from 0.4%) in July. The consensus expected factory orders to decline 1.0%
      • The weakness in the manufacturing sector comes as a strong dollar has curtailed export demand and low oil prices have reduced demand for drilling equipment
    • St. Louis Fed President Bullard (non-FOMC voter and hawk) advocated normalizing interest rates, "which remain at emergency settings" despite the FOMC near achievement of its objectives
    • San Francisco Fed President Williams (FOMC voter) said Thursday that he was "just looking for steady, continuing improvement in the labor market" in order to raise rates and that "above 100K or 150K" jobs added to the U.S. economy per month "would be good to me"
  • Commodities:
    • WTI crude: +1.94% to $45.61/bbl.
      • The Baker Hughes rig count dropped by 26 to 614 last week , marking the lowest rig count total since August of 2010
    • Gold: +2.05% to $1,136.50/troy oz.
    • Copper: +1.63% to $2.342/lb.
  • Currencies:
    • EUR/USD: +0.19% to $1.1210
    • USD/JPY: +0.18% to 120.08
  • Week Ahead:
    • Monday: September ISM Services (10:00 ET); San Francisco Fed President Williams (FOMC voter) (17:30 ET)
    • Tuesday: August Trade Balance (08:30 ET); $24 bln 3-year auction (results at 13:00 ET)
    • Wednesday: MBA Mortgage Index for the week ending 10/03 (07:00 ET); Crude Inventories for the week ending 10/03 (10:30 ET); August Consumer Credit (15:00 ET); $21 bln 10-year auction - reopening (results at 13:00 ET)
    • Thursday: Initial Jobless Claims for the week ending 10/03 and Continuing Jobless Claims for the week ending 9/26 (08:30 ET); St. Louis Fed President Bullard (non-FOMC voter) (9:30 ET); Natural Gas Inventories for the week ending 10/03 (10:30 ET); FOMC Minutes for the 9/17 meeting (14:00 ET); $13 bln 30-year auction - reopening (results at 13:00 ET); Minneapolis Fed President Kocherlakota (non-FOMC voter) gives welcome remarks (13:00 ET); San Francisco Fed President Williams (FOMC voter) (15:30 ET)
    • Friday: September Export Prices ex-ag. and Import Prices ex-oil (08:30 ET); Atlanta Fed President Lockhart (FOMC voter) (9:10 ET); August Wholesale Inventories (10:00 ET); Chicago Fed President Evans (FOMC voter) (13:30 ET)