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Update: 2014-10-01 15:55:18 ET

Moving the Market

MBA Mortgage Index: Actual -0.2%, prior -4.1%

ADP Employment Change: Actual 214K, consensus 202K, prior 204K (revised 202K)

ISM Index: Actual 56.6, consensus 58.5, prior 59.0

Construction Spending: Actual -0.8%, consensus 0.4%, prior 1.8% (revised 1.2%)

Auto Sales: Prior 6.2M

Truck Sales: Prior 7.9M

3:30:18 ET
10-Year:+22/32 2.408    GNMAs:     EUR/USD:1.2616    USD/JPY:109.07   
Treasuries Surge as Stocks Stumble After Weak Data:
  • Treasuries finished on their highs, supported by a massive short covering rally
  • The complex ticked higher ahead of the cash open and continued to grind higher over the course of the day as equity markets succumbed to heavy selling
  • Early buying was rather orderly before picking up steam despite the ADP Employment Change (213K actual v. 202K expected) beat. 
  • The complex saw another leg higher after ISM Index (56.6 actual v. 58.5 expected, 59.0 previous) and construction spending (-0.8% actual v. +0.4% expected) both fell well short of estimates.
  • Trade would drift near this morning's highs for much of the afternoon before seeing a final rush higher into the cash close as equity markets put in fresh session lows.
  • Up front, the 2Y fell -5.5bps to 0.524%. Today's bid has caused many participants to turn their focus towards support in the 0.500% area. 
  • The 5Y shed -9.7bps to 1.683%. The yield pressed to a three-week low below the 50 dma (1.696%) before finding support near the 100 dma (1.667%). 
  • The 10Y tumbled -10.5bps to 2.403%. Buying over the past two weeks has dropped the benchmark yield almost -25bps off the mid-September high, and has action moving into a test of key 2.400% support. 
  • The 30Y plunged -9.9bps to 3.113%. Action remains just a handful of bps above the September lows near 3.050% with a breakdown of that level leading to the lowest print since May 2013. 
  • A flatter curve developed as the 2-10-yr spread tightened to 188bps.
  • Precious metals gained with gold up +$4 @ $1216 and silver higher by +$0.14 @ $17.20. 
  • Data: Challenger Job Cuts (7:30), initial and continuing claims (8:30), and factory orders (10). 
  • Fed Speak: STL's Bullard participates in a discussion on monetary policy and the economy (18:30). The Richmond Fed's two-day conference on "The Labor Market After the Great Recession" begins.

2:18:24 ET
10-Year:+20/32 2.414    GNMAs:     EUR/USD:1.2607    USD/JPY:109.29   
Dollar Little Changed Amid Choppy Trade:
  • The Dollar Index holds little changed near 86.00. 
  • Today's trade has seen an inside range day as action has been limited to the 85.80/86.20 area.
  • EURUSD is -20 pips @ 1.2610 as trade flirts with a fresh two-year low ahead of tomorrow's European Central Bank meeting. Traders continue to wait on further clarification of the recently announced ABS purchase program, and are also contemplating whether the central bank will launch a sovereign bond buying scheme. Spanish unemployment will cross the wires tomorrow ahead of the ECB decision. 
  • GBPUSD is -40 pips @ 1.6175 as sellers remain in control for a sixth day. Manufacturing PMI was the latest piece of data to miss in the UK, setting up a potential retest of the September lows near 1.6050/1.6100. British data out tomorrow is limited to Construction PMI. 
  • USDCHF is +25 pips @ .9575 as trade readies for its best close in 14 months. The pair tested the .9600 level in early action, but was rebuffed there for a second straight day. This remains a secondary play on the euro. 
  • USDJPY is -30 pips @ 109.30 as action lingers just off session lows. Overnight, the mixed Tankan Surveys ran the pair above 110.00 for the first time in more than six years, but trade now looks likely to close lower for the first time in four days. The 10.850 region provides minor support. 
  • AUDUSD is -30 pips @ .8720 after recovering most of its early losses. The hard currency pressed to a fresh seven-month low near .8665 following the overnight retail sales miss, but has clawed back those losses as trade is now fighting to avoid finishing below Monday's close. Australia's building approvals and trade balance are due out this evening. Chinese banks remain closed for National Day. 
  • USDCAD is -20 pips @ 1.1175 as trade pulls back for just the second time in nine days. The 1.1250 area remains a key hurdle, corresponding with the March highs.

1:00:50 ET
10-Year:+222/32 2.411    GNMAs:     EUR/USD:1.2610    USD/JPY:109.30   
Afternoon Update: 2Y +02/32 @ 99 30/32...3Y +05/32 @ 100 01/32...5Y +12/32 @ 100 10/32...7Y +17/32 @ 100 00/32...10Y +22/32 @ 99 22/32...30Y +1 11/32 @ 99 29/32...EURUSD -20 pips @ 1.2610...GBPUSD -30 pips @ 1.6185...USDJPY -30 pips @ 109.30...USDCHF +25 pips @ .9575...AUDUSD -25 pips @ .8720...USDCAD -15 pips @ 1.1180 
11:53:31 ET
10-Year:+20/32 2.414    GNMAs:     EUR/USD:1.2617    USD/JPY:109.30   
Treasuries Continue to Climb:
  • Treasuries linger near their best levels of the day
  • Aggressive buying across the complex has most yields lower by close to -9bps.
  • Up front, the 2Y is down -5.9bps @ 0.520%. Today's bid puts support in the 0.500% area in focus.
  • In the belly, the 5Y is -9.5bps @ 1.684%. The yield has pressed to its lowest level in three weeks with support in the 1.650% area moving into focus. The 50, 100, and 200 dmas lurk in the vicinity. 
  • The 10Y trades -9bps @ 2.418%. Today's aggressive bid has flushed the benchmark yield below the 50 dma with action now more than -20bps off the September highs.
  • The 30Y continues to lag, -7.7bps @ 3.135%. Minor support in the area is all that stands in the way of a retest of the late-August lows near 3.050%. 
  • Curve flattening continues as the 2-10-yr spread trades tighter @ 190bps.
  • Precious metals are on their best levels of the day with gold +$7 @ $1219 and silver +$0.33 @ $17.39.

11:41:53 ET
10-Year:+18/32 2.421%    GNMAs:     EUR/USD:1.2606    USD/JPY:109.39   
ECB, Jobs On Deck: The Dollar Index saw a fair share of profit taking this morning as U.S. economic data came in light of expectations. ADP was able to outpace expectations but the miss in the Markit PMI, the ISM and Construction Orders overshadowed the jobs number. The DXY would tumble from the 86.10 area to 85.80 before finding support. We are now seeing a V-shaped bounce as it rallied back to 86. With the ECB tomorrow and jobs Friday we may see currency markets take a small breather here following a volatile morning. 
  • The euro continues its decline as markets await tomorrow's ECB meeting. Manufacturing surveys were also weak with Germany seeing a notable slip below the key 50 expansion level, signalling that the country's economy was in contraction for the first time in 15 months. The euro was able to briefly rally back above 1.26 on the dollar profit taking but has reversed course and is back in the 1.25s. Tomorrow, Mario Draghi will need to impress markets with further details on the ABS program. There is also hope that the central bank will discuss sovereign bonds but this may be more of a pipe dream as yields remain extremely low (a 10-year German auction saw yields under 1% this morning) and the political will remains in serious question. 
  • The pound continues to roll as it dipped back into the 1.61 area for the first time in three weeks. The recent current account deficit and weakening Euro area is having an impact on the pound which should test its recent multi-month lows of 1.6050 in coming sessions.
  • The yen continues to hover near multi-year lows and tested the 110 level for support for the first time in six years. This will be a closely watched psyche level moving forward.

10:07:23 ET
10-Year:+17/32 2.423    GNMAs:     EUR/USD:1.2635    USD/JPY:109.29   
Data Reaction II:
  • Treasuries climbed to their best levels of the session as equities saw heavy selling in the opening minutes of trade, and are pressing their best levels of the session in response to the dismal ISM Index (56.6 actual v. 58.5 expected, 59.0 previous) and construction spending (-0.8% actual v. +0.4% expected) data.
  • Aggressive buying is having the biggest impact on the belly as the 5Y trades -8.1bps @ 1.698%. 
  • The 10Y is down -7.9bps @ 2.429% with the benchmark yield pressing to a three-week low. 
  • The long end lags with the 30Y -6.4bps @ 3.148%. The 30Y is lower for the eighth time in ten days. 
  • A slightly flatter curve persists as the 2-10-yr spread trades 190.5bps. 
  • Precious metals are on their highs with gold +$6 @ $1218 and silver +$0.24 @ $17.30.

8:23:54 ET
10-Year:+10/32 2.459    GNMAs:     EUR/USD:1.2614    USD/JPY:109.70   
Data Reaction
  • Treasuries have seen steady buying over the course of the morning and have pressed to session highs following the better than expected ADP Employment Report (214K actual v. 202K expected). 
  • Early strength has longer dated yields lower by close to -4bps with the 10Y down to 2.466%. 
  • A flatter curve persists as the 2-10-yr spread trades 191.5bps. 
  • Precious metals have climbed into positive territory with gold +$2 @ $1214 and silver +$0.04 @ $17.10. 
  • ISM Index and construction spending are due out at 10am ET.

7:55:12 ET
10-Year:+02/32 2.479    GNMAs:     EUR/USD:1.2596    USD/JPY:109.91   
European Yields
  • Yields press lower across Europe as traders await tomorrow's European Central Bank rate decision and Mario Draghi press conference. 
  • German Bunds hold small gains following today's 10Y auction. The auction was the first to draw a sub-1.00% yield (0.93%), but saw weak demand as the bid/cover came in at 1.1x.
  • UK Gilts are bid following the weakest Manufacturing (PMI 51.6 actual v. 52.6 expected, 52.2 previous) print since June 2013. A -3bp decline has the 10Y @ 2.385%, a three-week low. 
  • French OATs hold small gains amid a mostly uneventful session. The 10Y is lower by -2bps @ 1.270%.
  • Spanish Bonos are sharply higher as money pours in ahead of tomorrow's ECB meeting. Today's strong Manufacturing PMI (52.6 actual v. 52.3 expected, 52.8 previous) number has helped attract flows with the 10Y down -8bps @ 2.080%. 
  • Italian BTPs sport modest gains following the better than expected Manufacturing PMI (50.7 actual v. 49.4 expected, 49.8 previous) that saw the reading move back into expansion. The 10Y is off -4bps @ 2.305% ahead of tomorrow's ECB meeting.

7:12:51 ET
10-Year:+01/32 2.482    GNMAs:     EUR/USD:1.2591    USD/JPY:109.89   
Yen Weakens Below 110.00:
  • The Dollar Index continues its assault on multi-year highs as trade holds just shy of yesterday's highs near 86.20.
  • The three-month rally has seen the Index climb almost 8% to its best levels since July 2010.
  • EURUSD is -30 pips @ 1.2600 as action flirts with a fresh two-year low. Today's weakness in the single currency comes despite both Italian (50.7 actual v. 49.4 expected, 49.8 previous) and Spanish (52.6 actual v. 52.3 expected, 52.8 previous) Manufacturing PMI outpacing estimates. All eyes remain on tomorrow's European Central Bank rate decision and accompanying Mario Draghi press conference as traders await details on the recently announced ABS purchases, as well as the potential for a sovereign bond buying scheme.
  • GBPUSD is -20 pips @ 1.6195 as sellers look to remain in control for a sixth straight day. Today's selling comes after Manufacturing PMI (51.6 actual v. 52.6 expected, 52.2 previous) dipped to its lowest level since June 2013. The September lows in the 1.6050/1.6100 area remain under close watch.
  • USDCHF is +35 pips @ .9585 as early strength has the pair on track for its best close in 14 months. Today's selling has been aided by the drop in SVME PMI (50.4 actual v. 52.1 expected, 52.9 previous), but trade still remains tightly correlated to the euro. 
  • USDJPY is +25 pips @ 109.85 as buyers fight to remain in control for a fourth day. An overnight bid developed following the mixed Tankan Manufacturing (13 actual v. 10 expected, 12 previous) and Tankan Non-Manufacturing (13 actual v. 17 expected, 19 previous) Surveys, running the pair above 110.00 for the first time since August 2008. However, steady selling over the course of the morning has pushed action back below the psychological hurdle. 
  • AUDUSD is -50 pips @ .8700 as trade presses to a fresh seven-month low. Overnight selling dropped the hard currency below .8665 before buyers once again emerged in defense of key support. China's Manufacturing PMI held in-line at 51.1. Chinese banks were closed for Golden Week
  • USDCAD is +10 pips @ 1.1205 as trade grinds higher for the eighth time in nine days. The recent streak puts the March highs in focus with a move through the 1.1250 region marking the best level since July 2009.

6:44:06 ET
10-Year:+01/32 2.482    GNMAs:     EUR/USD:1.2592    USD/JPY:109.81   
Treasuries Catch Early Bid:
  • Treasuries hold small gains ahead of the cash open. 
  • Overnight action saw its usual 3bp range. 
  • Up front, the 2Y holds -1.2bps @ 0.567%. Action continues to struggle in its attempt to break through the 0.600% level. 
  • In the belly, the 5Y is -3.2bps @ 1.748%. Support in the area has held up in each of the past six sessions, but remains under pressure. 
  • The 10Y trades -2.6bps @ 2.482%. The early bid has pushed the benchmark yield back below the psychologically important 2.500% level and has action testing support and the 50 dma. 
  • The long bond lags, -1.6bps @ 3.196%. Yesterday's bid produced just the second gain in the past nine sessions, and ran the yield off a three-week low.
  • A flatter curve has developed amid the early bid with the 2-10-yr spread tighter @ 191.5bps.
  • Precious metals are off their worst levels, but remain in the red, as gold trades -$2 @ 1210 and silver holds -$0.03 @ $17.02.
  • Data: MBA Mortgage Index (7), ADP Employment Change (8:15), ISM Index, construction spending (10), and auto/truck sales (14).

3:16:54 ET
10-Year:-05/32 2.501    GNMAs:     EUR/USD:1.2629    USD/JPY:109.66   
Quarter-End Selling Hits Treasuries:
  • Treasuries finished on their lows as some quarter-end selling developed in the final minutes of trade
  • The complex held small modest losses into the cash open, but wiped away the weakness in response to the trio of disappointing data.
  • Case-Shiller 20-city Index (6.7% actual v. 7.4% expected), Chicago PMI (60.5 actual v. 61.5 expected, 64.3 previous) and consumer confidence (86.0 actual v. 92.0 expected, 92.4 previous) all fell short of estimates. 
  • An uneventful trade saw action hug the flat line for much of the session before selling developed in the final minutes of trade. 
  • Up front, the 2Y slipped -1.5bps to 0.579%. Action flirted with 0.600%, but was once again rejected at the level. 
  • In the belly, the 5Y ticked up +0.7bps to 1.780%. Early buying provided yet another test of 1.750% support, but the level held for a sixth straight day. 
  • The 10Y climbed +1.7bps to 2.508%. The benchmark yield reclaimed the psychologically important 2.500% level, but stopped short of reclaiming the 100 dma (2.518%).
  • A the long end, the 30Y lagged, rallying +3.2bps to 3.212%. Today marked just the second loss for the long bond in nine sessions.
  • Selling swung the curve steeper as the 2-10-yr spread widened to 193bps.
  • Precious metals were pressured as gold fell -$11 to $1207 and silver plunged -$0.59 to $16.98. 
  • Data: MBA Mortgage Index (7), ADP Employment Change (8:15), ISM Index, construction spending (10), and auto/truck sales (14).

2:25:23 ET
10-Year:-02/32 2.487    GNMAs:     EUR/USD:1.2631    USD/JPY:109.63   
Dollar Marches Higher:
  • The Dollar Index sports modest gains as trade fights to hold the 85.90 level. 
  • Early buying ran the greenback above the 86.00 level, and up to 86.20, for the first time since July 2010 before surrendering a portion of the advance in U.S. trade. 
  • EURUSD is -60 pips @ 1.2625 as action readies for its lowest close in two years. The single currency came under early selling pressure after Germany saw a jump in unemployment and eurozone Flash CPI slowed to 0.3% YoY, the lowest on record. These levels will remain of interest into Thursday's ECB rate decision with many expecting some clarity on the recently announced ABS purchases, However, few believe sovereign bond buying will be announced. Italian and Spanish Manufacturing PMI are due out tomorrow.
  • GBPUSD is -35 pips @ 1.6205 as trade slides to a three-week low. Today's weakness comes in the face of mixed data that saw Q3 Final GDP tick up to 0.9% QoQ (0.8% QoQ expected), but the current account deficit widen. A break below the 1.6200 level puts the September lows in focus. Britain's Manufacturing PMI will be announced tomorrow. 
  • USDCHF is +35 pips @ .9545 as action likes almost certain to close at a fresh 14-month high. The pair tested the .9600 level in early action, but has pulled back as the euro rallies off its lows. 
  • USDJPY is +20 pips @ 109.65 as trade ticks to a six-year high. Traders will be monitoring the 110.00 level into tonight's Tankan Manufacturing and Tankan Non-Manufacturing releases.
  • AUDUSD is +25 pips @ .8745 as action ticks off seven-month lows. The hard currency tested key support at the .8700 level for a second session, and buyers emerged despite the disappointing Chinese HSBC Final Manufacturing PMI. Australian data set for tonight is limited to retail sales while China's Manufacturing PMI will be released. Chinese banks will be closed for Golden Week.
  • USDCAD is +40 pips @ 1.1200 as buyers remain in control for the seventh time in eight days. Today's advance developed after Canada's GDP (0.0% MoM actual v. 0.2% MoM expected) and RMPI (-2.2% MoM actual v. -1.7% MoM expected) readings both fell short of estimates with action on track to close at its best level in six months. Traders will be monitoring the 1.1250/1.1300 area as a breakout would produce levels last seen in July 2009.