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Update: 2017-09-19 11:55:20 ET

Moving the Market

-- FOMC begins two-day meeting

-- August Housing Starts (actual: 1180K; consensus: 1170K;prior: 1190K) and Building Permits (actual: 1300K; consensus: 1212K; prior: 1230K)

-- August Import Prices ex-oil (actual: +0.3%; prior: -0.1%) andExport Prices ex-agriculture (actual: +0.7%; prior: 0.3%)

-- Q2 Current Account Balance (actual: -$123.10 billion; consensus: -$115.50 billion; previous: -$113.50 billion)

11:14:24 ET
10-Year:-2/32 2.237    GNMAs:     EUR/USD:1.1981    USD/JPY:111.50   

2s Hold; 10s Slip

  • Recent action saw the 2-yr note continue holding near its late morning level while 5s, 10s, and 30s have dipped to new lows for the session. The Treasury market has shown a downward bias from the start, but the selling has not been particularly aggressive. The 10-yr yield has spent the early portion of the day inside a narrow range, which has widened to three basis points as part of the recent move to a new low. This leaves the 10-yr yield near levels last seen in the middle of August.
  • Yield Check:
    • 2-yr: UNCH at 1.39%
    • 5-yr: +1 bp to 1.83%
    • 10-yr: +1 bp to 2.34%
    • 30-yr: +1 bp to 2.81%

10:05:13 ET
10-Year:UNCH 2.231    GNMAs:     EUR/USD:1.1980    USD/JPY:111.40   

Moving Sideways

  • U.S. Treasuries have continued moving in sideways fashion, though the day's ranges have widened a touch. The 10-yr note has inched to a fresh low for the day while the 5-yr note has ticked up off its low that was notched immediately after the release of today's batch of economic data. The S&P 500 has gotten off to a flat start while the Dollar Index is down 0.2% at 91.85.
  • Yield Check:
    • 2-yr: UNCH at 1.39%
    • 5-yr: UNCH at 1.82%
    • 10-yr: UNCH at 2.23%
    • 30-yr: UNCH at 2.80%

9:06:32 ET
10-Year:+2/32 2.22    GNMAs:     EUR/USD:1.1978    USD/JPY:111.43   

Econ Recon

  • Housing Starts for August declined 0.8% month-over-month to a seasonally adjusted annual rate of 1.180 million ( consensus 1.170) from an upwardly revised 1.190 million for July (from 1.155 million). Building permits jumped 5.7% to a seasonally adjusted annual rate of 1.300 million from an upwardly revised 1.230 million for July (from 1.223 million).
  • The strength in permits was owed to multi-family permits, Single-family permits declined 1.5%. Conversely, a 1.6% increase in single-family starts helped offset a 6.5% decline in multi-unit starts.
  • The key takeaway from the report is that the pace of single-family starts isn't quick enough to alleviate the supply pressures in the housing market that are crimping affordability for prospective homeowners. That isn't expected to improve next month either when the force of the impact from Hurricanes Harvey and Irma hit housing starts activity.

  • Separately, the key takeaway from the Import-Export Price Index report for August is that it will keep the possibility of a December rate hike on the table.
    • Import prices increased 0.6%, which was the largest increase since January and left import prices up 2.1% year-over-year. Excluding fuel, import prices increased 0.3% and were up 1.0% year-over-year versus down 0.9% for the 12 months ending August 2016.
    • Export prices also increased 0.6%, which was the largest increase since June 2016 and left export prices up 2.3% year-over-year. Excluding agriculture, export prices jumped 0.7% and were up 2.4% year-over-year versus down 2.3% for the 12 months ending August 2016.

  • The second quarter current account deficit, meanwhile, widened to $123.1 billion ( consensus -$115.1 billion) from a revised $113.5 billion deficit (from -$116.6 billion) in the first quarter.

  • Yield check:
    • 2-yr: unch at 1.39%
    • 5-yr: -1 bp to 1.81%
    • 10-yr: -1 bp to 2.22%
    • 30-yr: unch at 2.80%

8:46:31 ET
10-Year:+1/32 2.226    GNMAs:     EUR/USD:1.1985    USD/JPY:111.47   

Back to Flat

  • Treasuries have seen some slight selling in response to today's economic data, which showed better than expected Housing Starts (actual: 1180K; consensus 1170K) and Building Permits (actual: 1300K; consensus 1212K). The 5-yr note has moved to its overnight low while other maturities hover near the middle of their respective ranges.
  • Yield Check:
    • 2-yr: UNCH at 1.39%
    • 5-yr: UNCH at 1.82%
    • 10-yr: UNCH at 2.23%
    • 30-yr: UNCH at 2.80%

8:30:02 ET
10-Year:+3/32 2.219    GNMAs:     EUR/USD:1.1979    USD/JPY:111.49   

Yields Dip

  • European yields are mostly lower, pulling back after the recent rally. Greek issues have retreated today, but this comes after a stretch, during which Greek debt showed relative strength. Reuters reported that policymakers at the European Central Bank disagree about setting a firm date for ending asset purchases due to the significant appreciation of the euro. The single currency is up 13.7% against the dollar in 2017 with the entire gain coming in the past five months. French Finance Minister Bruno Le Maire said his country's budget for 2018 will be fair, but will include about EUR16 billion in spending cuts. The 2017 deficit/GDP ratio declined to 2.9% from 3.0% and the 2018 deficit/GDP ratio is expected to decline to 2.6%.
  • European Economic Data:
    • Eurozone July Current Account surplus EUR25.10 billion (expected surplus of EUR22.30 billion; last surplus of EUR22.80 billion). ZEW Economic Sentiment 31.7 (expected 32.4; last 29.3)
    • Germany's September ZEW Economic Sentiment 17.0 (expected 12.5; last 10.0) and ZEW Current Conditions 87.9 (consensus 86.6; last 86.7)
  • Yield Check:
    • France, 10-yr OAT: -2 bps to 0.71%
    • Germany, 10-yr bund: -2 bps to 0.43%
    • Greece, 10-yr note: +7 bps to 5.47%
    • Italy, 10-yr BTP: -4 bps to 2.02%
    • Portugal, 10-yr PGB: -2 bps to 2.39%
    • Spain, 10-yr ODE: -5 bps to 1.53%
    • U.K., 10-yr gilt: UNCH at 1.31%

8:15:07 ET
10-Year:+4/32 2.217    GNMAs:     EUR/USD:1.1971    USD/JPY:111.46   

Fed Meeting Begins

  • U.S. Treasuries have inched up off yesterday's closing levels, but the overnight session was very quiet. The lack of overnight activity was not surprising, considering the FOMC will begin its two-day meeting today with a policy announcement scheduled for tomorrow at 14:00 ET. The market does not expect the meeting to produce a rate hike, but participants will be eager to hear if Fed Chair Janet Yellen indicates when the balance sheet normalization process will begin.
  • Yield Check:
    • 2-yr: -1 bp to 1.38%
    • 5-yr: -1 bp to 1.81%
    • 10-yr: -1 bp to 2.22%
    • 30-yr: -1 bp to 2.79%
  • News:
    • South Korea's August PPI +0.3% month-over-month (last 0.1%); +3.2% year-over-year (last 3.0%)
    • Australia's Q2 House Price Index +1.9% quarter-over-quarter (expected 1.1%; last 2.2%)
    • New Zealand's Q3 Westpac Consumer Sentiment 112.4 (last 113.4)
    • Press reports from Japan indicate Prime Minister Shinzo Abe may call a snap election as early as September 25. Rumors about an impending election have circulated as of late, but the timing of the vote remains uncertain
    • China is expected to amend its constitution at the 19th Party Congress, which will begin on October 18
    • Strong demand for Hong Kong dollar prompted Hong Kong Monetary Authority to offer additional short-term paper
    • The Reserve Bank of Australia's latest policy minutes noted evidence of a pick-up in economic data and an improvement in the labor market
  • Data out Today:
    • August Housing Starts ( consensus 1170K; prior 1155K) and Building Permits ( consensus 1212K; prior 1223K) at 8:30 ET
    • August Import Prices ex-oil (prior -0.1%) and Export Prices ex-agriculture (prior 0.3%) at 8:30 ET
    • Q2 Current Account Balance ( consensus -$115.10 billion; prior -$116.60 billion) at 8:30 ET

3:33:18 ET
10-Year:-8/32 2.232    GNMAs:     EUR/USD:1.1951    USD/JPY:111.51   

FOMC Meeting on Tap

  • U.S. Treasuries began the week on a lower note with longer-dated issues ending near their worst levels of the day while 2s and 5s spent the afternoon climbing off their morning lows. The intraday dynamic contributed to yield curve steepening, as the 2s10s spread expanded to 84 bps from 82 bps on Friday. The Federal Open Market Committee will begin its two-day meeting tomorrow, and while the market does not expect a rate hike to be announced on Wednesday, the FOMC statement has an elevated potential to influence rate hike expectations for December. Furthermore, the Fed is expected to announce a start date for the balance sheet normalization process. The U.S. Dollar Index is up 0.2% at 92.05 while the S&P 500 looks to remain above its flat line after surrendering the bulk of its slim intraday gain.
  • Yield Check:
    • 2-yr: +1 bp to 1.39%
    • 5-yr: +2 bps to 1.82%
    • 10-yr: +3 bps to 2.23%
    • 30-yr: +3 bps to 2.80%
  • News:
    • NAHB Housing Market Index declined to 64 in September from a revised 67 (from 68) in August.
    • U.S. Treasury auctioned three-month bills at 1.045% (previous 1.035%) and six-month bills at 1.180% (previous 1.140%)
    • Bank of England Governor Mark Carney shared a cautious outlook for the British economy. He acknowledged that a rate hike may be in order soon due to an increase in global equilibrium rates, but also noted that tightening will be limited and gradual.
  • Commodities:
    • WTI crude: UNCH at $49.91/bbl
    • Gold: -1.1% to $1310.60/ozt
    • Copper: +0.7% to $2.97/lb
  • Currencies:
    • EUR/USD: +0.1% to 1.1951
    • USD/JPY: +0.7% to 111.50
  • Data out Tuesday:
    • August Housing Starts ( consensus 1170K; prior 1155K), August Building Permits ( consensus 1212K; prior 1223K), August Import Prices ex-oil (prior -0.1%), August Export Prices ex-agriculture (prior 0.3%), and Q2 Current Account Balance ( consensus -$115.10 billion; prior -$116.60 billion) at 8:30 ET