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Update: 2017-02-24 15:55:03 ET

Moving the Market
  • January New Home Sales: Actual 555K, Briefing.com consensus 566K, Prior 535K (revised from 536K)
  • February Michigan Sentiment -- Final: Actual 96.3, Briefing.com consensus 95.8, Prior 95.7
  • Trump economic adviser Gary Cohn told CEOs this morning that House version of border tax is not happening

2/24/2017
3:03:43 ET
10-Year:+17/32 2.31    GNMAs:     EUR/USD:1.0567    USD/JPY:111.97   

Treasuries Jump as Traders Ditch Risk

  • U.S. Treasuries traded sharply higher today as global equities declined and the Japanese yen rallied. Government bonds did not just rally in the U.S. but also in Europe and Japan, where the 10-year JGB yield touched a one-month low of 0.04% (prices move inversely to yields). The U.S. economic data was sparse but new home sales did run cooler than expected in January. Gary Cohn, economic adviser to President Trump, told a meeting of CEOs this morning that the White House does not support House Republican's border tax plan. Also from Washington, Kevin Hassett is set to be the next head of the President's Council of Economic Advisers, a committee that was going the way of the dodo as of last week. The S&P 500 is now down by 0.20% to 2,359 after falling as low as 2,352.6 early in the session. The U.S. Dollar Index is up 0.02% to 101.07
  • Yield Check:
    • 2-yr: -4 bps to 1.15%
    • 5-yr: -5 bps to 1.81% 
    • 10-yr: -6 bps to 2.31%
    • 30-yr: -6 bps to 2.95%
  • News:
    • The Commerce Department reported that new home sales rose 3.7% to a 555K annualized rate in January. The Briefing.com consensus was 566K and December's pace was 535K
      • All regions saw increased sales except for The West, down by 4.4%
      • Supply remained at 5.7 months' of sales or 265K, the highest level in seven years
      • The median selling price was up 7.5% to $312,900
    • The University of Michigan's Consumer Sentiment Index was finalized at 96.3 for February, better than both the Briefing.com consensus of 95.8 and the second estimate of 95.7. January's reading was 98.5
      • The Expectations Index was revised up to 86.5 from 85.7
      • The Current Conditions Index was revised up to 111.5 from 111.2
      • Long-term inflation expectations are steady at 2.5%
  • Commodities:
    • WTI crude: -0.81% to $54.01/bbl.
    • Gold: +0.60% to $1,258.9/troy oz.
    • Copper: 
  • Currencies:
    • EUR/USD: -0.16% to 1.0567
    • USD/JPY: -0.65% to 111.97
  • Week Ahead:
    • Monday: January Durable Goods Orders and Durable Goods Orders ex-transportation (08:30 ET); January Pending Home Sales (10:00 ET); Dallas Fed President Kaplan (FOMC voter) (11:00 ET)
    • Tuesday: Q4 GDP and GDP Deflator -- Second Estimate (08:30 ET); February Chicago PMI (09:45 ET); February Consumer Confidence (10:00 ET); Kansas City Fed President George (non-FOMC voter) (12:45 ET); San Francisco Fed President Williams (non-FOMC voter) (15:30 ET); St. Louis Fed President Bullard (non-FOMC voter) (18:30 ET)
    • Wednesday: MBA Mortgage Index for the week ending 2/25 (07:00 ET); January Personal Income, Personal Spending, and PCE Prices (08:30 ET); January Construction Spending (10:00 ET); February ISM Manufacturing Index (10:00 ET); Crude Inventories for the week ending 2/25 (10:30 ET); Dallas Fed President Kaplan (FOMC voter) (12:30 ET); February Auto and Truck Sales (14:00 ET); March Beige Book (14:00 ET)
    • Thursday: February Challenger Job Cuts (07:30 ET): Initial Jobless Claims for the week ending 2/25 and Continuing Jobless Claims for the week ending 2/18 (08:30 ET); Natural Gas Inventories for the week ending 2/18 (10:30 ET); Cleveland Fed President Mester (non-FOMC voter) (19:00 ET)
    • Friday: February ISM Services (10:00 ET); Chicago Fed President Evans (FOMC voter) (10:15 ET); Richmond Fed President Lacker (non-FOMC voter, retiring this year) (10:15 ET); Fed Vice Chair Fischer (FOMC voter) (12:00 ET); Fed Chair Yellen (FOMC voter) (13:00 ET)

 
2/24/2017
2:16:08 ET
10-Year:+13/32 2.33    GNMAs:     EUR/USD:1.0571    USD/JPY:112.13   

Dollar Vacillates as Treasury Yields and Stocks Drop

  • The U.S. Dollar Index rose 0.04 to 101.09 today as the Japanese yen rallied hard on the derisking in global equity markets and falling government bond yields. Relatively higher yielding currencies like the British pound and the antipodeans traded lower from multi-week highs reached on Thursday. The dollar remains firmly range-bound for now with a potential head and shoulders pattern forming but we're still in the early days of that. The shoulders would be at 102 and the neckline would be 99.40. A breakdown through the neckline would indicate downside of 4.5 points, according to the technical analysis textbooks. The actual trade is unlikely to be so easy though. USD/MXN traded down close to its 200-day moving average of 19.52 today but reversed higher from 19.64. On tap for next week are official Chinese PMIs on Wednesday and U.S. ISM Manufacturing and Services Indices on Wednesday and Friday, respectively
  • EUR/USD: -0.13% to 1.0571
    • France's Consumer Confidence Index remained at 100 in February, as expected
    • Spain's producer price index rose 7.5% y/y in January after a 2.9% gain in December
    • Italian Industrial sales climbed 2.6% m/m in December (9.4% y/y) after 2.4% growth in November
  • GBP/USD: -0.70% to 1.2467
    • In the U.K., BBA Mortgage Approvals totaled 44.7K in January, unexpectedly climbing from December's 43.6K
  • USD/CHF: unch at 1.0063
  • USD/JPY: -0.51% to 112.13
  • USD/CNY: -0.06% to 6.861
  • USD/RUB: +1.17% to 58.44
  • USD/TRY: +0.90% to 3.601
  • USD/BRL: +1.52% to 3.108
    • Brazil's unemployment rate rose more than expected to 12.6% for the three months through January from the prior reading of 12.0%
  • USD/MXN: +0.93% to 19.86
    • Retail sales in Mexico rose 9.0% y/y in December after an 11.2% annual increase in November
  • USD/CAD: -0.13% to 1.3090
    • Canada's core consumer price index grew by 0.5% m/m in January (1.7% y/y), beating forecasts and reversing a 0.3% decline in December
      • Canada's headline CPI rose 0.9% m/m in January (2.1% y/y), almost exceeding estimates after a 0.2% dip in December
  • AUD/USD: -0.43% to 0.7679
  • NZD/USD: -0.41% to 0.7199

 
2/24/2017
1:01:05 ET
10-Year:+13/32 2.33    GNMAs:     EUR/USD:1.0569    USD/JPY:112.21   

Dollar Rebounds

  • Treasuries are still substantially higher today but have pulled back from their levels as the S&P 500 continues to recoup losses, now down just 0.13% to 2,360.4. The session low for the index was 2,352.6. There are 11 Fed speakers next week but we have heard from most of them fairly recently. The voting speakers will be Chicago Fed President Evans, Dallas Fed President Kaplan, and the Fed Chair and Vice Chair (Yellen and Fischer). The U.S. economic data calendar for next week is a lot more busy, the highlights being ISM Manufacturing and Non-Manufacturing, personal income/spending, and durable goods orders. While March 3 is the first Friday of March, the February Employment Situation Report will not be released until March 10
  • Gold is adding 0.48% at $1,257.4/troy oz. and WTI crude is losing 0.72% at $54.06/bbl.
  • The U.S. Dollar Index is up 0.02% to 101.07
  • Over the past hour, we have heard that Kevin Hassett will head up the President's Council of Economic Advisers
  • Bloomberg on the diminishing interest rate swaption skew
  • The Financial Times ran a piece on Thursday about a clause in a new Viacom bond indenture that allows the redemption of the bonds if the interest payments lose their tax deductability:
    • The clause in Viacom's bond prospectus allows the US media group, which owns the MTV and Nickelodeon television networks and Paramount film studio, to redeem the $1.3bn of junior subordinated notes should the interest it pays on the debt no longer be 'deductible...for US federal income tax purposes'.
  • Yield Check:
    • 2-yr: -2 bps to 1.16%
    • 5-yr: -4 bps to 1.82%
    • 10-yr: -4 bps to 2.33%
    • 30-yr: -5 bps to 2.97%

 
2/24/2017
12:17:13 ET
10-Year:+15/32 2.328%    GNMAs:     EUR/USD:1.0587    USD/JPY:112.16   

Quiet Day on the FX Front: The Dollar Index is testing the 101 level for resistance. The greenback was trending lower but saw some buyers jump in right ahead of the open. But that rally has fizzled out at 101. We will be getting a steady flow of data next week which will help set up the March meeting expectations. The biggest headwind at the moment appears to be the dollar and the low yields in Europe as the Fed is worried about the divergence. Of note, the jobs report is not out until March 10. This is due to how the timing of the three week period at the BLS plays out.

  • The euro was trading above the 1.06 level but would tumble below that level before finding support at the 1.0560 area. The weakness came as we saw headlines regarding difficult Brexit negotiations. This is hardly a new story, but as we approach the Article 50 trigger (expected at the end of March), it should pick up some steam and act as a headwind.
  • The pound would slip from the mid-1.25 area to just below 1.25. Sterling was able to find footing and is attempting to regain some of its losses with limited success.
  • The yen is now starting to find support at 113 after breaking through the resistance level yesterday. Yen is coming in to test its multi-month low (11.59) and the 100-sma (111.72). The later would be the first test since late October.
  • The yuan remains steady. Earlier in the week Treasury Secretary Steve Mnuchin said that he would await the April FX report before making any statements on China currency manipulation. The President was a little more forward with commentary as he reiterated concerns over China manipulating its currency.

 
2/24/2017
12:05:08 ET
10-Year:+15/32 2.32    GNMAs:     EUR/USD:1.0586    USD/JPY:112.21   

Dollar Ticks Lower

  • U.S. Treasuries remain sharply higher today as the S&P 500 loses 0.26% to 2,357.7 and the U.S. Dollar Index slips by 0.12% to 100.93. Gold is 0.52% higher at $1,257.9/troy oz. and WTI crude is off by 0.84% to $53.99/bbl.
  • Gary Cohn, economic advisor to President Trump, told a group of CEOs this morning that the White House does not support the House's version of a border tax, according to Axios 
  • The New York Fed's "nowcast" of Q1 U.S. real GDP growth is at 3.1%, mostly unchanged from last week
  • The New York Times has a good piece today on excess capacity in the U.S. economy. The article discusses excess capacity in manufacturing as well office vacancies
  • Yield Check:
    • 2-yr: -3 bps to 1.16%
    • 5-yr: -5 bps to 1.81%
    • 10-yr: -5 bps to 2.32%
    • 30-yr: -5 bps to 2.96%

 
2/24/2017
11:08:49 ET
10-Year:+13/32 2.33    GNMAs:     EUR/USD:1.0578    USD/JPY:112.32   

Trump Speaks at CPAC

  • Treasuries are trading at session highs at the moment as the S&P 500 loses just 0.21% to 2,358.8. Gold is adding 0.45% to $1,257/troy oz. and WTI crude is off by 0.64% to $54.10/bbl. Donald Trump is speaking before the Conservative Political Action Conference and said that middle class is going to get a massive tax cut. There is no basis for this claim in historical or current reality unless you define the middle class as making over $250K/year. Again, the ACA repeal, which would effect that "middle class" tax cut, is proving tough going for Congressional GOP leadership. Until the Affordable Care Act is changed, tax reform probably needs to get 60 votes to avoid a filibuster
  • The probability that the Fed has hiked rates by the end of the March 14-15 FOMC meeting is 18%, according to the CME website
    • The cumulative probability for a hike by the end of the May 2-3 meeting is 48%
    • For the June 13-14 meeting, it's 67%
  • The U.S. Dollar Index bounced sharply this morning from its 100.66 low to trade down just 0.04% at 101.01 right now. There have been a series of lows between 100.64 and 100.73 since mid-November. That information would have been more useful this morning, but there you have it. The uptrend drawn from from the September 8 low has been getting whipsawed over for the past two weeks, so the break is probably of less value. We noted two weeks ago that the beginnings of a head and shoulders pattern is getting drawn out, with the shoulders around 102.00 and the neckline at 99.40
  • DXY (Daily):

 
2/24/2017
10:20:17 ET
10-Year:+10/32 2.34    GNMAs:     EUR/USD:1.0578    USD/JPY:112.31   

Treasuries Add to Gains

  • U.S. Treasuries remain higher this morning after the Commerce Department reported that new home sales rose 3.7% to a 555K annualized rate in January. The Briefing.com consensus was 566K and December's pace was 535K
    • All regions saw increased sales except for The West, down by 4.4%
    • Supply remained at 5.7 months' of sales or 265K, the highest level in seven years
    • The median selling price was up 7.5% to $312,900
  • The University of Michigan's Consumer Sentiment Index was finalized at 96.3 for February, better than both the Briefing.com consensus of 95.8 and the second estimate of 95.7
    • January's reading was 98.5
    • Long-term inflation expectations are steady at 2.5%
    • The Expectations Index was revised up to 86.5 from 85.7
    • The Current Conditions Index was revised up to 111.5 from 111.2
  • The S&P 500 is down 0.31% to 2,356.4 and the U.S. Dollar Index is losing 0.06% at 100.99
  • Gold is up 0.39% to $1,256.3/troy oz. and WTI crude is losing 0.61% to $54.12/bbl.
  • Yield Check:
    • 2-yr: -4 bps to 1.15%
    • 5-yr: -4 bps to 1.82%
    • 10-yr: -4 bps to 2.33%
    • 30-yr: -4 bps to 2.97%

 
2/24/2017
9:51:06 ET
10-Year:+9/32 2.34    GNMAs:     EUR/USD:1.0573    USD/JPY:112.40   

Treasuries Jump Ahead of New Home Sales

  • The U.S. Dollar Index is rebounding sharply this morning, now trading down just 0.02% to 101.03 after touching an intraday low of 100.66. Treasuries remain moderately higher as the S&P 500 opens to a loss of 0.38% at 2,355.1. WTI crude is losing 0.83% to $54.00/bbl. and gold is up 0.19% to $1,253.8/troy oz. January's New Home Sales Report is due out at 10:00 ET 
  • As we have noted for the past couple of weeks, the expected fiscal stimulus from the changing of the guard in the White House is looking less certain these days. For procedural reasons having to do with the budget reconciliation process, the Affordable Care Act repeal/replace legislation needs to be passed and signed before tax reform happens. The former is looking to be a political problem as it would significantly impact the very voters that Trump relied on for his election and that the entire Republican party relies upon to a somewhat lesser extent. The GOP's Senate majority of just 52-48 means that almost perfect discipline is required and the Republican party is less united now than it has been since the 1990s, even if it is more powerful than it's been since 2006. The word out of the White House on Thursday was that infrastructure spending is a job for 2017. While this will be politically good for the Republicans, putting any stimulative effect closer to the midterm elections, investors who have been relying on a deregulatory/fiscal boost to U.S. growth may be left hanging. With stocks back at all-time highs and housing prices still firm, the U.S. economy may not need the fiscal stimulus just yet. But, the cyclical growth effects of pent-up demand from the financial/housing crisis of ~2007-2010 should now be fairly minimal
  • Yield Check:
    • 2-yr: -2 bps to 1.16%
    • 5-yr: -3 bps to 1.83%
    • 10-yr: -3 bps to 2.34%
    • 30-yr: -3 bps to 2.99%

 
2/24/2017
8:49:33 ET
10-Year:+10/32 2.34    GNMAs:     EUR/USD:1.0609    USD/JPY:112.08   

Stocks Set for Ugly Open

  • U.S. Treasury yields are at two-week lows this morning as the sell-off in global equity markets drives a flight-to-quality bid into government bonds. Last week's U.S. economic data releases for January were very strong (PPI, CPI, retail sales, housing starts) and, combined with an equity rally, it is impressive that the bulls were able to move yields significantly lower. The S&P 500 is now set to open down 0.45% to 2,354 and the U.S. Dollar Index is off by 0.33% to 100.72. Gold is at a three-month high of $1,260.4/troy oz.
  • New home sales are due out at 10:00 ET. While the vast majority of U.S. home sales are of existing homes, new home sales come with concomitant purchases in durable goods like household appliances and all manner of furnishings. For this reason, each new home sale should be considered much more important than an existing home sale
  • The minutes from the latest FOMC meeting were released on Wednesday and the headlines read that "many participants thought a rate hike might be necessary fairly soon," but as we said at the time, the participants skew hard to the hawkish side. Here is a Bloomberg piece from Thursday afternoon, reiterating that point
  • Yield Check:
    • 2-yr: -2 bps to 1.17%
    • 5-yr: -3 bps to 1.83%
    • 10-yr: -3 bps to 2.34%
    • 30-yr: -3 bps to 2.98%

 
2/24/2017
8:13:58 ET
10-Year:+4/32 2.36    GNMAs:     EUR/USD:1.0611    USD/JPY:112.21   

European Government Debt Rallies to Multi-Week Highs

  • European sovereign debt is trading higher across the board and yields, which move inversely to prices, are reaching multi-week lows as global equities get hit with another round of selling. Core/periphery eurozone country spreads are somewhat narrower on the session but the 2-year German schatz is still on track for its best week since the eurozone crisis. Although a Marine Le Pen victory in May's runoff round of the French presidential election still appears to be a long shot, the redenomination of German debt into deutsche marks could give such securities immediate capital gains, perhaps on the order of 20%. Since there is no shadow German currency to trade, German government bonds may be the simplest way to try to profit from a eurozone breakup, which is seen as likely if Marine Le Pen were to win the second round of voting in France. The downside risk to being long the 2-year schatz is only that one pays 0.55% more than the European Central Bank's -0.40% deposit rate. If one sees the probability of eurozone breakup as 20%, some would consider this is a cheap option
  • European Economic Data:
    • France's Consumer Confidence Index remained at 100 in February, as expected
    • Spain's producer price index rose 7.5% y/y in January after a 2.9% gain in December
    • Italian Industrial sales climbed 2.6% m/m in December (9.4% y/y) after 2.4% growth in November
      • Industrial new orders were up 2.8% m/m (-0.9% y/y) after a 1.7% increase in November
    • Italy's Business Confidence Index unexpectedly increased to 106.3 for February from 105.0 for January
      • The Consumer Confidence Index unexpectedly fell to 106.6 from 108.6
    • Belgian industrial production rose 4.6% m/m in December after 0.25% growth in November
    • In the U.K., BBA Mortgage Approvals totaled 44.7K in January, unexpectedly climbing from December's 43.6K
    • In Denmark, retails sales increased 0.21% m/m in January, missing expectations after a 1.2% slide in December
  • Yield Check:
    • France, 10-yr OAT: -3 bps to 0.95%
    • Germany, 10-yr bund: -3 bps to 0.21%
    • Greece, 10-yr note: -14 bps to 7.07%
    • Italy, 10-yr BTP: -1 bp to 2.21%
    • Portugal, 10-yr PGB: -6 bps to 3.89%
    • Spain, 10-yr ODE: -5 bps to 1.63%
    • U.K., 10-yr gilt: -4 bps to 1.11%

 
2/24/2017
7:37:58 ET
10-Year:+3/32 2.36    GNMAs:     EUR/USD:1.0613    USD/JPY:112.22   

Treasuries Tick Higher as Global Equities Retreat

  • U.S. Treasuries are edging higher this morning ahead of new home sales data for January. Global equities are pulling back from recent highs in a bout of profit-taking and the U.S. Dollar Index is losing 0.34% to 100.71. The international economic data was light. French consumer confidence remains at a 10-year high and French debt is rallying again as optimism improves that right-wing presidential candidate Marine Le Pen will not be victorious in April's election. The 10-year German bund yield is down to 0.20%, a six-week low. The German 2-year schatz is on track for its best week since July 2012, its yield touching -0.95%, as financial instability and various noneconomic factors push short-sellers out a security that yields 0.55 percentage points less than the European Central Bank's policy rate. The S&P 500 is set to open down 0.42% to 2,354.8 and WTI crude is down 0.75% to $54.04/bbl. Gold is up 0.58% to $1,258.7/troy oz., a three-month high
  • Yield Check:
    • 2-yr: unch at 1.18%
    • 5-yr: -1 bp to 1.85%
    • 10-yr: -1 bp to 2.36%
    • 30-yr: unch at 3.01%
  • International News:
    • Korea's Consumer Sentiment Index rose to 94.4 in February from 93.3 in January
    • France's Consumer Confidence Index remained at 100 in February, as expected
    • Spain's producer price index rose 7.5% y/y in January after a 2.9% gain in December
    • Italian Industrial sales climbed 2.6% m/m in December (9.4% y/y) after 2.4% growth in November
      • Industrial new orders were up 2.8% m/m (-0.9% y/y) after a 1.7% increase in November
    • Italy's Business Confidence Index unexpectedly increased to 106.3 for February from 105.0 for January
      • The Consumer Confidence Index unexpectedly fell to 106.6 from 108.6
    • Belgian industrial production rose 4.6% m/m in December after 0.25% growth in November 
    • In the U.K., BBA Mortgage Approvals totaled 44.7K in January, unexpectedly climbing from December's 43.6K
    • In Denmark, retails sales increased 0.21% m/m in January, missing expectations after a 1.2% slide in December
  • Data out Today:
    • February Michigan Sentiment -- Final (10:00 ET)
    • January New Home Sales (10:00 ET)