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Update: 2017-05-29 11:55:14 ET

Moving the Market
  • April Durable Goods Orders: Actual -0.7%, Briefing.com consensus -1.8%, Prior 2.3% (revised from 0.7%)
    • Durable Goods Orders ex-trans: Actual -0.4%, Briefing.com consensus 0.4%, Prior 0.8% (revised from -0.2%)
  • Q1 GDP -- Second Estimate: Actual 1.2%, Briefing.com consensus 0.8%, Prior 0.7%
    • GDP Deflator -- Second Estimate: Actual 2.2%, Briefing.com consensus 2.3%, Prior 2.3%
  • May Michigan Sentiment -- Final: Actual 97.1, Briefing.com consensus 97.5, Prior 97.7

5/26/2017
2:56:43 ET
10-Year:+3/32 2.25    GNMAs:     EUR/USD:1.1175    USD/JPY:111.20   

Treasuries Edge Higher Despite Upward Revision to Q1 GDP

  • U.S. Treasuries ended with modest gains today despite an upward revision to the official estimate for Q1 U.S. GDP growth (1.2% SAAR vs. Briefing.com consensus 0.8%). Durable goods orders for April missed expectations but March's numbers were revised up. The oil bulls dug in this morning and held WTI crude for July delivery above the $48/bbl. level, helping to limit the rally in Treasuries. The trading activity slowed down in the late morning as market participants tried to get a jump on the early weekend. Next week will be much heavier on economic data. The S&P 500 is up 0.01% to 2,415.2 and the U.S. Dollar Index is down 0.03% to 97.41
  • Yield Check:
    • 2-yr: unch at 1.30%
    • 5-yr: -1 bp to 1.78%
    • 10-yr: -1 bp to 2.25%
    • 30-yr: -1 bp to 2.91%
  • News:
    • U.S. GDP grew at a 1.2% seasonally adjusted annual rate in Q1, according to the second official estimate. The Briefing.com consensus was 0.8%, up from the preliminary estimate of 0.7%. Q4 growth was 2.1%
    • Real consumer spending growth was revised up to 0.6% from 0.3%
    • The second official estimate for the GDP price index was 2.2%, just short of the Briefing.com consensus of 2.3%. The first estimate was 2.3%
    • U.S. durable goods orders fell by 0.7% m/m in April, beating the Briefing.com consensus for a drop of 1.8%. March's change was 2.3%, revised up from 0.7%
      • Durable goods orders excluding transportation fell by 0.4% m/m in April, missing the Briefing.com consensus for growth of 0.4%. March's change was 0.8%, revised up from -0.2%
      • The key takeaway from the report was that nondefense capital goods orders excluding aircraft -- a proxy for business spending -- were flat for the second straight month
    • The Michigan Consumer Sentiment Index was finalized at 97.1 for May, down from the second estimate of 97.7. The Briefing.com consensus was for a smaller downward revision to 97.5. April's reading was 97.0
      • The Current Conditions Index was revised down to 111.7 from 112.7
      • The Expectations Index was revised down to 87.7 from 88.1
      • Inflation expectations one year out: confirmed at 2.6%
      • Inflation expectations 5-10 years: revised up to 2.4% from 2.3%
    • The 2-year/30-year Treasury yield spread narrowed to 160 basis points, a post-election low
    • The Atlanta Fed's GDPNow model forecast for U.S. real GDP growth in Q2 fell to 3.7%, down from 4.1% on May 16
    • The NY Fed's Nowcast of Q2 U.S. real GDP growth fell to 2.2% today from 2.3% previously
  • Commodities:
    • WTI crude: +1.82% to $49.79/bbl.
    • Gold: +1.00% to $1,269/troy oz.
    • Copper: -1.12% to $2.568/lb.
  • Currencies:
    • EUR/USD: -0.30% to 1.1175
    • USD/JPY: -0.57% to 111.20
  • Week Ahead:
    • Monday: (Memorial Day holiday)
    • Tuesday: April Personal Income and Spending (08:30 ET); April PCE Price and Core PCE Prices (08:30 ET); May Consumer Confidence (10:00 ET)
    • Wednesday: MBA Mortgage Index for the week ending 5/27 (07:00 ET); Dallas Fed President Kaplan (FOMC voter) (08:00 ET); May Chicago PMI (09:35 ET); April Pending Home Sales (10:00 ET); May Fed Beige Book (14:00 ET); San Francisco Fed President Williams (non-FOMC voter)
    • Thursday: May Challenger Job Cuts (07:30 ET); May ADP Employment Change (08:15 ET); Q1 Productivity and Unit Labor Costs -- Revised (08:30 ET); Initial Jobless Claims for the week ending 5/27 and Continuing Jobless Claims for the week ending 5/20 (08:30 ET); April Construction Spending (10:00 ET); May ISM Manufacturing Index (10:00 ET); Natural Gas Inventories for the week ending 5/27 (10:30 ET); Crude Inventories for the week ending 5/27 (11:00 ET); May Auto and Truck Sales (14:00 ET)
    • Friday: May Employment Situation Report (08:30 ET); April Trade Balance (08:30 ET); Philadelphia Fed President Harker (FOMC voter) (12:45 ET)

 
5/26/2017
2:19:00 ET
10-Year:+2/32 2.25    GNMAs:     EUR/USD:1.1174    USD/JPY:111.26   

Pound Slides on Labour Poll Gains

  • The U.S. Dollar Index lost 0.02% to 97.42 today as the British pound fell sharply on the Conservative's narrowing lead in the polls for the June 8 election. The Labour Party is still expected to get fewer votes than the Conservatives but investors now see a higher probability for a hung parliament, where no party wins an absolute majority. This is seen as unfriendly for business and has sent sterling bulls running for the hills. In the U.S., the strong upward revision to Q1 GDP growth encouraged dip-buying in the USD. A bout of profit-taking in European equities and lower global rates encouraged buying of the Japanese yen. The Canadian and kiwi dollars gained against the greenback as energy and metals prices climbed
  • EUR/USD: -0.30% to 1.1174
    • Italy's Business Confidence Index unexpectedly fell to 106.9 for May from 107.7 in April
    • Italy's Consumer Confidence Index fell more than expected to 105.4 for May from 107.4 in April
  • GBP/USD: -1.09% to 1.2802
    • The British pound fell to a two-month low against the greenback as the polls showed Labour gaining against the Conservatives ahead of the June 8 election
      • The YouGov poll showed the Conservatives leading (43%), followed by Labour (38%) and the Liberal Democrats (10%) and Ukip (4%)
  • USD/CHF: +0.17% to 0.9745
  • USD/JPY: -0.52% to 111.26
    • Japan's National Core CPI was up 0.3% y/y in April, missing forecasts after 0.2% growth in March
    • Japan's Tokyo Core CPI was up 0.1% y/y in May, beating expectations after a 0.1% decline in April
    • The Corporate Services Price Index rose 0.7% y/y in April (0.8% prior)
  • USD/CNY: -0.17% to 6.856
    • The People's Bank of China has moved to take more control over its renminbi exchange rate to discourage further depreciation
  • USD/RUB: -0.42% to 56.59
  • USD/TRY: +0.43% to 3.582
  • USD/BRL: -0.39% to 3.262
    • In Brazil, producer prices rose 2.2% y/y in April (1.6% prior)
    • Brazil's debt/GDP ratio fell to 47.7% in April from 47.8% in March
  • USD/MXN: -0.16% to 18.48
    • Mexico's unemployment rate jumped to 3.5% in April from 3.2% in March, missing expectations for a smaller rise
  • USD/CAD: -0.23% to 1.3455
  • AUD/USD:  -0.14% to 0.7444
  • NZD/USD: +0.60% to 0.7063

 
5/26/2017
1:11:24 ET
10-Year:+2/32 2.25    GNMAs:     EUR/USD:1.1180    USD/JPY:111.36   

Treasuries Hold Modest Gains

  • U.S. Treasuries are seeing a very subdued trade this afternoon as some market participants have surely left early for the long weekend. The U.S. economic data releases this morning were generally positive when you factor in the upward revisions to March's durable goods orders data. The view from here is that the Fed will hike on June 14 to a target range for the fed funds rate of 1.00-1.25%. The fed funds futures now shows an 88% probability of that outcome, according to the CME website. The market is currently split roughly evenly on whether or not there will be another hike this year following June's. Since not much is happening, it's worth recapping the major themes for the bulls and bears. For the Treasury bears, there is ample evidence that global economic growth is accelerating, particularly in the eurozone and emerging markets ex-China. There is also the prospect of slowing central bank purchases next year as the ECB tapers and the Fed begins to unwind its balance sheet. Also, a weakening U.S. dollar could increase imported inflation and economic growth. For the bulls, the past few months' inflation data has been very subdued. There are also signs of topping in certain frothy property markets like Toronto, London, and New York City. Global equity markets have been very tame since the November 8 U.S. election and higher volatility could push investors into safe havens
  • The S&P 500 is up 0.01% to 2,415.3 and the U.S. Dollar Index is unchanged at 97.45
  • WTI crude is up 1.27% to $49.52/bbl. and gold is up 0.85% to $1,267.1/troy oz.
  • Yield Check:
    • 2-yr: -unch at 1.30%
    • 5-yr: unch at 1.79%
    • 10-yr: -1 bp to 2.25%
    • 30-yr: -1 bp to 2.91%

 
5/26/2017
11:58:52 ET
10-Year:+2/32 2.25    GNMAs:     EUR/USD:1.1170    USD/JPY:111.30   

Atlanta Fed's Model Sees 3.7% Growth in Q2

  • U.S. Treasuries are still sitting on small gains today as the S&P 500 loses 0.07% at 2,413.5. The U.S. Dollar Index is up 0.24% to 97.48 after touching a five-day high earlier today. The U.S. Dollar Index has declined from a high of 103.82 on the first trading day of 2017. Much of the move has been a function of the euro's rally, which represents roughly 60% of the index. WTI crude is adding 0.61% at $49.20/bbl. and gold is up 0.76% to $1,266/troy oz.
  • Goldman's chief economist, Jan Hatzius, is losing conviction that the Fed will be able to hike the fed funds rate two more times in 2017. He credits the recent weak readings on U.S. inflation for his change of heart. PIMCO is sounding a similar tone. More from Business Insider
  • The Atlanta Fed's GDPNow model forecast for U.S. real GDP growth in Q2 is 3.7%, down from 4.1% on May 16
    • The forecast for Q2 real residential investment growth fell from 8.3% to 3.1% after Tuesday's housing related releases and Wednesday's existing-home sales release
  • Yield Check:
    • 2-yr: -1 bp to 1.29%
    • 5-yr: -1 bp to 1.78%
    • 10-yr: -1 bp to 2.25%
    • 30-yr: -1 bp to 2.91%

 
5/26/2017
11:17:34 ET
10-Year:+4/32 2.24    GNMAs:     EUR/USD:1.1181    USD/JPY:111.26   

Next Week to Be Heavy on U.S. Economic Data

  • The U.S. Treasury market has given back most of its gains this morning as the yield curve has reversed its flattening move from earlier in the session. The S&P 500 is down 0.03% to 2,414.2 and the U.S. Dollar Index is up 0.17% to 97.41. Gold is adding 0.89% at $1,267.6/troy oz. and WTI crude is up 0.31% to $49.05/bbl. 
  • The big event this week, in hindsight, was the release of the minutes from the May 2-3 FOMC meeting. This was the important text:
    • Under the proposed approach, the Committee would announce a set of gradually increasing caps, or limits, on the dollar amounts of Treasury and agency securities that would be allowed to run off each month, and only the amounts of securities repayments that exceeded the caps would be reinvested each month. As the caps increased, reinvestments would decline, and the monthly reductions in the Federal Reserve's securities holdings would become larger. The caps would initially be set at low levels and then be raised every three months, over a set period of time, to their fully phased-in levels. The final values of the caps would then be maintained until the size of the balance sheet was normalized. Nearly all policymakers expressed a favorable view of this general approach.
    • This excerpt is notable because some market participants had assumed that the Fed would entirely halt reinvestments and the above strategy shows that the reinvestments of maturing securities could be scaled down over time
  • The NY Fed's Nowcast of Q2 U.S. real GDP growth is down to 2.2% today from 2.3% previously
  • The U.S. economic data releases will come fast and furious next week. Personal income and spending are due on Monday, the ADP Employment Change and ISM Manufacturing will come out on Thursday, and the May jobs report will be released on Friday. These data are very unlikely to induce a pause by the Fed at the June 13-14 FOMC meeting
  • Yield Check:
    • 2-yr: unch at 1.30%
    • 5-yr: -1 bp to 1.78%
    • 10-yr: -1 bp to 2.25%
    • 30-yr: unch at 2.92%

 
5/26/2017
10:18:28 ET
10-Year:+6/32 2.23    GNMAs:     EUR/USD:1.1182    USD/JPY:111.18   

Consumer Sentiment Gets Revised Down

  • U.S. Treasuries are remaining firm today despite some positive U.S. economic data, indicating that they may want to retest the May, and eventually the April, lows. The S&P 500 is down 0.02% to 2,414.5 and the U.S. Dollar Index is higher by 0.16% to 97.40. Gold is up 0.84% to $1,266.9/troy oz. and WTI crude is up 0.61% to $49.20/bbl.
  • The Michigan Consumer Sentiment Index was finalized at 97.1 for May, down from the second estimate of 97.7. The Briefing.com consensus was for a smaller downward revision to 97.5. April's reading was 97.0
    • The Current Conditions Index was revised down to 111.7 from 112.7
    • The Expectations Index was revised down to 87.7 from 88.1
    • Inflation expectations one year out: confirmed at 2.6%
    • Inflation expectations 5-10 years: revised up to 2.4% from 2.3%
  • Yield Check:
    • 2-yr: unch at 1.29%
    • 5-yr: -2 bps to 1.78%
    • 10-yr: -2 bps to 2.23%
    • 30-yr: -2 bps to 2.90%

 
5/26/2017
9:41:49 ET
10-Year:+3/32 2.24    GNMAs:     EUR/USD:1.1172    USD/JPY:111.26   

Stocks Open to Minor Losses

  • U.S. Treasuries have pared their gains this morning but the yield curve remains flatter as traders warm to long-dated securities while eschewing 2-year notes ahead of the virtually guaranteed June rate hike. The S&P 500 is losing 0.09% to 2,412.8 at the open and the U.S. Dollar Index is up 0.22% to 97.47. Gold is adding 0.75% at $1,265.8/troy oz. The U.S. economic data out this morning was strong on balance, with durable goods orders seeing strong upward revisions to March's readings and Q1 GDP getting revised up too
  • St. Louis Fed President James Bullard spoke in Japan today and said that U.S. prices are now 4.6% below their 1995-2012 path. He said that this undershooting on inflation was a worrisome trend. He reiterated his view, embraced back in early 2016, that the Fed is much too eager to remove monetary accommodation. Bullard added that the decline in long-term interest rates and market-based measures of inflation expectations since the March rate hike suggests the Fed is being too aggressive
  • Yield Check:
    • 2-yr: +1 bp to 1.31%
    • 5-yr: -1 bp to 1.79%
    • 10-yr: -1 bp to 2.24%
    • 30-yr: -2 bps to 2.90%
  • More on Durable Goods report:
    • The Durable Orders Report for April produced some headline surprises. Total orders declined 0.7% (Briefing.com -1.8%) while orders excluding transportation declined 0.4% (Briefing.com consensus +0.4%). Strikingly, there were large upward revisions for March, with total orders increasing 2.3% (from 0.7%) and orders excluding transportation increasing 0.8% (from -0.2%)
    • The key takeaway from the report is that nondefense capital goods orders excluding aircraft -- a proxy for business spending -- were flat for the second straight month
    • Shipments of those goods, which factor into GDP forecasts, declined 0.1% in April.
    • New orders for primary metals (-0.2%), fabricated metal products (-0.9%), machinery (-0.8%), electrical equipment, appliances and components (-1.7%), and transportation equipment (-1.2%) all declined in April. those declines, however, followed on the heels of increases in March
    • New orders for computers and electronic products increased 1.4% after declining 2.3% in March
    • New orders for nondefense capital goods excluding aircraft are up just 1.3% year-over-year

 
5/26/2017
8:45:01 ET
10-Year:+6/32 2.23    GNMAs:     EUR/USD:1.1182    USD/JPY:111.11   

Treasuries Hold Gains 

  • U.S. Treasuries are still trading higher this morning in a curve-flattening move despite a strong upward revision to Q1 GDP growth. Headline durable goods orders also beat expectations although core durable goods orders came up short. The S&P 00 is set to open down 0.13% to 2,411.9 and the U.S. Dollar Index is up 0.14%. WTI crude is down 0.61% to $48.60/bbl. as Russia says that OPEC's monitoring committee may adjust the output deal in July. Gold is up 0.84% to $1,267.1/troy oz.
  • U.S. GDP grew at a 1.2% seasonally adjusted annual rate in Q1, according to the second official estimate. The Briefing.com consensus was 0.8%, up from the preliminary estimate of 0.7%. Q4 growth was 2.1%
    • Real consumer spending growth was revised up to 0.6% from 0.3%
    • The second official estimate for the GDP price index was 2.2%, just short of the Briefing.com consensus of 2.3%. The first estimate was 2.3%
  • U.S. durable goods orders fell by 0.7% m/m in April, beating the Briefing.com consensus for a drop of 1.8%. March's change was 2.3%, revised up from 0.7%
    • Durable goods orders excluding transportation fell by 0.4% m/m in April, missing the Briefing.com consensus for growth of 0.4%. March's change was 0.8%, revised up from -0.2%
  • The 2-year/30-year Treasury yield spread has narrowed to 160 basis points, a post-election low
  • Tim Duy, professor of economics at the University of Oregon, wrote on Thursday that the Fed is still on track to hike in June
    • The CME website shows a 88% probability for a June hike, based on its calculation from fed funds futures prices
  • Yield Check:
    • 2-yr: -2 bps to 1.28%
    • 5-yr: -2 bps to 1.77%
    • 10-yr: -2 bps to 2.23%
    • 30-yr: -3 bps to 2.89%

 
5/26/2017
8:23:43 ET
10-Year:+7/32 2.23    GNMAs:     EUR/USD:1.1194    USD/JPY:111.08   

European Government Bonds Jump on Risk Aversion and Cheaper Oil

  • European sovereign debt is trading higher across the board with German and French bonds seeing the strongest gains. European equity indices never fully recovered from last Wednesday's plunge and they are sliding again toward three-week lows. Oil prices are also moving lower with Brent crude down 1.01% to $50.94/bbl. (~$1.50 premium to West Texas Intermediate). Overnight, U.S. President Trump criticized Germany again for running large and persistent trade surpluses, although not in so many words. The U.K.'s June 8 election is now looking like less of a landslide and some analysts are talking about the vote resulting in a hung parliament. It remains unclear whether this is just the cherry-picking of one outlying poll result that the markets can seize upon to justify the drop in pound sterling or if Labour has actually become more popular. More information on the U.K. vote
  • The British pound fell to a two-month low against the greenback as the polls showed Labour gaining against the Conservatives ahead of the June 8 election
    • The YouGov polls showed the Conservatives leading (43%), followed by Labour (38%) and the Liberal Democrats (10%) and Ukip (4%)      
  • European Economic Data:
    • Italy's Business Confidence Index unexpectedly fell to 106.9 for May from 107.7 in April
    • Italy's Consumer Confidence Index fell more than expected to 105.4 for May from 107.4 in April
    • Hungary's unemployment rate unexpectedly rose to 4.6% in April (4.5% prior)
  • Yield Check:
    • France, 10-yr OAT: -4 bps to 0.75%
    • Germany, 10-yr bund: -4 bps to 0.33%
    • Greece, 10-yr note: -8 bps to 5.91% 
    • Italy, 10-yr BTP: -1 bp to 2.10%
    • Portugal, 10-yr PGB: -2 bps to 3.16%
    • Spain, 10-yr ODE: -4 bps to 1.53%
    • U.K., 10-yr gilt: -3 bps to 1.02%

 
5/26/2017
7:44:17 ET
10-Year:+6/32 2.24    GNMAs:     EUR/USD:1.1208    USD/JPY:111.01   

Treasuries Jump as Equities Drop

  • The U.S. Treasury market is rallying to five-day highs this morning as traders in Europe worry that the U.K. election will result in a hung parliament. A YouGov poll out today showed a tightening race, with Labour picking up three percentage points to trail the Conservatives by just five percentage points. In the eurozone, Italian business sentiment pulled back from a nine-year high while consumer confidence hit a two-year low. The People's Bank of China has moved to take more control over its renminbi exchange rate to discourage further depreciation. The S&P 500 is set to open down 0.25% to 2,409.4 and the U.S. Dollar Index is losing 0.08% to 97.17. WTI crude is lower by 0.20% at $48.80/bbl. and gold is up 0.89% to a three-week high of $1,267.6/troy oz.
  • Yield Check:
    • 2-yr: -2 bps to 1.28%
    • 5-yr: -3 bps to 1.76%
    • 10-yr: -2 bps to 2.24%
    • 30-yr: -2 bps to 2.90%
  • International News:
    • Japan's National Core CPI was up 0.3% y/y in April, missing forecasts after 0.2% growth in March
      • Japan's Tokyo Core CPI was up 0.1% y/y in May, beating expectations after a 0.1% decline in April
      • The Corporate Services Price Index rose 0.7% y/y in April (0.8% prior)
    • Italy's Business Confidence Index unexpectedly fell to 106.9 for May from 107.7 in April
    • Italy's Consumer Confidence Index fell more than expected to 105.4 for May from 107.4 in April
  • Data out Friday:
    • April Durable Goods Orders and Durable Goods Orders ex-trans (08:30 ET)
    • Q1 GDP and GDP Deflator -- Second Estimate (08:30 ET)
    • May Michigan Sentiment -- Final (10:00 ET)

 
5/25/2017
3:24:47 ET
10-Year:+1/32 2.25    GNMAs:     EUR/USD:1.1211    USD/JPY:111.76   

Treasuries Entice Buyers Amid Risk Rally as Oil Price Plunge

  • U.S. Treasuries ended the day unchanged, just about where they began the U.S. session. There was a short mid-morning decline as Fed Governor Lael Brainard, the most dovish Fed governor, said that she saw strong improvement in the global economy, but those losses were quickly reversed. The U.S. economic data releases were minor but the widening of the international trade in goods deficit is a slight negative for Q2 GDP growth. The $28 bln 7-year Treasury auction went off without a hitch, continuing this week's trend of solid demand for Treasury auctions. Another factor that could have helped to support Treasuries was the 5.55% decline in WTI crude to $48.51/bbl., as OPEC agreed to a nine-month extension of its supply cuts. The front-month contract traded as high as $52.00/bbl. overnight. The S&P 500 rose 0.46% to 2,415.3 as shorts from last week have begun to capitulate into a market with scant selling interest. The U.S. Dollar Index fell 0.04% to 97.20
  • Yield Check:
    • 2-yr: unch at 1.29%
    • 5-yr: +1 bp to 1.79%
    • 10-yr: unch at 2.25%
    • 30-yr: unch at 2.93%

  • News:
    • Initial jobless claims rose to 234K last week from the prior reading of 231K. The Briefing.com consensus was 238K
      • Continuing claims rose to 1923K for the week ending May 13 from the prior week's 1899K
    • The advance estimate for the balance of international trade in goods fell to a deficit of $67.6 bln in April from $65.1 bln in March
    • $28 bln 7-year Treasury auction
      • High yield: 2.060% (When-Issued: 2.058%)
      • Bid-to-cover: 2.54
      • Indirect bid: 61.2%
      • Direct bid: 17.2%

  • Commodities:
    • WTI crude: -5.55% to $48.51/bbl.
    • Gold: +0.22% to $1,255.9/troy oz.
    • Copper: +0.46% to $2.595/lb.
  • Currencies:
    • EUR/USD: -0.06% to 1.1211
    • USD/JPY: +0.23% to 111.76
  • Data out Friday:
    • April Durable Goods Orders and Durable Goods Orders ex-trans (08:30 ET)
    • Q1 GDP and GDP Deflator -- Second Estimate (08:30 ET)
    • May Michigan Sentiment -- Final (10:00 ET)