Moving the Market
Nonfarm Payrolls: Actual 203K, consensus 188K, prior 204K (revised 200K)
Nonfarm Private Payrolls: Actual 196K, consensus 200K, prior 212K (revised 214K)
Unemployment Rate: Actual 7.0%, consensus 7.2%, prior 7.3%
Hourly Earnings: Actual 0.2%, consensus 0.2%, prior 0.1%
Average Workweek: Actual 34.5, consensus 34.5, prior 34.4
Personal Income: Actual -0.1%, consensus 0.3%, prior 0.5%
Personal Spending: Actual 0.3%, consensus 0.3%, prior 0.2%
PCE Prices - Core: Actual 0.1%, consensus 0.1%, prior 0.1%
Michigan Sentiment: Actual 82.5, consensus 75.1, prior 75.1
Consumer Credit: Actual $18.2B, consensus $15.8B, prior $13.7B (revised $16.3B)
The Week in Review: 30y Hits Highest Level Since August 2011
The Week Ahead
- Treasuries were pressured this week as mostly better than expected data ignited fears the Fed may begin to scale back its bond-buying scheme as early as the December meeting.
- Friday's strong nonfarm payroll report (203K actual v. 188K expected) saw the unemployment rate fall to 7.0% (7.2% previous), and capped off a strong week of data.
- ISM Index (57.3 actual v. 55.5 expected), construction spending (0.8% actual v. 0.3% expected), new home sales (444K actual v. 420K expected), GDP - Second Estimate (3.6% actual v. 3.0% expected), and Michigan Sentiment (82.5 actual v. 75.1 expected) all topped forecasts.
- ISM Services (53.9 actual v. 55.0 expected) and personal income (-0.1% actual v. 0.3% expected) were the only notable misses.
- The latest Fed Beige Book suggested, "The economy continued to expand at a modest to moderate pace from early October through mid-November."
- This week's selling had the biggest impact on the belly of the curve, where yields climbed as much as +12bps.
- The 5y jumped +11bps, and managed to breakout above the 1.450% area that had acted as a lid since the middle of September. Friday's early selling ran the yield up to 1.545% before settling the day @ 1.505%.
- Aggressive selling in 10s ran the benchmark yield through key resistance in the 2.800% area. On the week, the 10y climbed +12bps to finish @ 2.883%. Traders continue to monitor the 3.000% area that corresponds with the September highs.
- Outperformance at the long end made for a +7bp move in the 30y. The yield on the long bond hit a high of 3.976%, its highest since August 2011, in response to the jobs report; however, it fell to 3.917% by Friday's cash close.
- A steeper curve developed over the course of the week as the 2-10-yr spread widened to 258bps.
- There is no data on Monday. Fed Chairman Ben Bernanke will attend a meeting of the Financial Stability Oversight Committee (14:30). Richmond's Lacker will give his economic outlook in Charlotte, NC (12:50); STL's Bullard will be on his home turf discussing monetary policy and the economy (13:05); Dallas' Fisher will be in Chicago, IL to speak on "U.S. and Regional Economic and Banking Trends" (13:15) and to discuss Fed policy and the economy (18:30).
- Data kicks off for the week on Tuesday with wholesale inventories and JOLTS - Job Openings (10). Treasury will auction $30 bln 3y notes.
- Wednesday's data is limited to the weekly MBA Mortgage Index (7) and the Treasury budget (14). Treasury will hold a $21 bln 10y note reopening. Treasury Secretary Lew will testify on the IMF in front of the House Financial Services Committee (10).
- Data picks up on Thursday with initial and continuing claims, retail sales, retail sales ex-auto, import/export prices (8:30), and business inventories (10). Treasury will reopen $13 bln 30y bonds.
- Friday will see PPI and core PPI (8:30).
Dollar Drifts Near 80.30
: The Dollar Index hovers near 80.30 amid a mostly uneventful trade. The Index spiked to the 80.60 level following this morning's strong nonfarm payroll report, but trade quickly slipped back to pre-data levels. Most of today's action has been trapped in a tight 15 cent range between 80.25 and 80.40.
- EURUSD is +25 pips @ 1.3690 as buyers remain in control for a fourth session. The single currency has managed to shrug off this morning's disappointing German factory orders data, and is now testing the 1.3700 area. The four-week winning streak has seen the euro tack on roughly 400 pips since the November lows. Eurozone data out Monday includes the German trade balance and German industrial production.
- GBPUSD is +5 pips @ 1.6340 as action hovers little changed. Sterling has tested and failed at the 1.6400 level each day this week, causing trade to test minor support near 1.6300. A breakdown of that level sets up a test of more meaningful support near 1.6200. Bank of England Governor Mark Carney will speak Monday in NYC.
- USDCHF is -40 pips @ .8925 as trade presses the October lows. The pair has been under pressure throughout the entire session after Swiss CPI printed a hotter than anticipated 0.0% (-0.2% expected). Traders will be tracking the .8900 area over the coming days as that level has provided support since the fall of 2011. Swiss data due out Monday is limited to retail sales.
- USDJPY is +110 pips @ 102.90 as trade tests the May highs near 103.00. The pair saw an early test of 101.50 support, and has since managed to wipe away the previous three days of losses. Japan's current account balance and Q3 Final GDP are due out Sunday. Bank of Japan Governor Haruhiko Kuroda will speak tonight in Tokyo.
- AUDUSD is +35 pips @ .9095 as buyers remain in control for a second session. The .9150 area has acted as a lid on recent action; however, a breakout would provoke a likely test of the .9300 resistance level that is helped by the 100 dma (.9270). Australian data is limited to ANZ Job Advertisements. China's trade balance is scheduled to cross the wires tomorrow with CPI and PPI due out Sunday evening.
- USDCAD is +5 pips @ 1.0655 amid a mostly uneventful day for the pair. The better than expected Canadian employment change (21.6K actual v. 12.3K expected) made for a volatile few minutes as traders had to digest both that and the US data, but trade has spent most of the session near the flat line with action holding at its best level in more than three and a half years.
Afternoon Update: 2y unch @ 99 28/32...3y -01/32 @ 100 01/32...5y unch @ 98 27/32...7y +02/32 @ 98 18/32...10y +03/32 @ 98 31/32...30y +06/32 @ 97 06/32...EURUSD +30 pips @ 1.3695...GBPUSD unch @ 1.6335...USDJPY +105 pips @ 102.85...USDCHF -35 pips @ .8930...AUDUSD +35 pips @ .9095...USDCAD +5 pips @ 1.0655
Treasuries Linger Near Session Highs:
- Treasuries trade flat to higher as action lingers near the highs into the noon hour.
- Fears of a Fed taper have subsided, at least for the time being, with longer dated yields ~7bps off this morning's highs.
- The 5y hit near 1.550% in reaction to this morning's jobs report, but is now little changed near 1.480%.
- A small bid in the 10s has the benchmark yield off 0.5bps @ 2.857%.
- The long bond outperforms as a modest bid has the 30y -1.5bps @ 3.900%.
- Early selling saw the yield hit 3.976%, its highest since August 2011.
- A flatter curve persists as the 2-10-yr spread trades 255.5bps.
- Precious metals remain little changed with gold and silver @ 1232 and $19.57, respectively.
- Consumer credit will be released at 3pm ET.
Uncertainty Over December 18 Meeting Remains:
The Dollar Index
was able to rally to the 80.60 level following a better than expected November jobs report. But it was unable to hold the ground and quickly gave up its gains to slide back near session lows. The better than expected jobs number will raise expectations of a December taper, but that is not being reflected in the dollar. The reality is that the news is unlikely to sway member who have already formulated opinions. But that does not mean there is any certainty over the Fed action on December 18 as the tapering is basically a coin toss at this point.
- The euro continued to stretch higher following the ECB rate decision and press conference. The single currency hit 1.3696 this morning, its best level since October 31. Market participants bid the euro after ECB president Mario Draghi provided commentary that suggested he was not prepared to act on further easing. The ECB updated its forecasts for 2013 and 2014 and provided its first glimpse at 2015. The inflation projections were at the low end of expectations, but the lack of dovish comments from Draghi was the bigger driver.
- The pound is higher this morning after it held 1.6300 yesterday. Part of the strength is being attributed to the higher than expected housing price number this morning. Sterling has settled around the 1.6350 level.
- The yen has given up some of its recent gains to dip back into the low end of the 102.00 area. The move comes as participants cautiously dip their toes back into some risk. 103.00 will remain a key support level for the yen.
Data Reaction II
- Treasuries tumbled to their worst levels of the session following the solid nonfarm payroll report, but managed to erase those losses as traders digested the data.
- The recently released Michigan Sentiment survey surged to 82.5 (75.1 expected), the best since July, causing Treasuries to see some light selling. Maturities across most of the complex trade in the red with selling continuing to have the biggest impact on the belly of the curve.
- The 5y is +3bps @ 1.505% as action remains on track to post the highest close since the middle of September.
- The 10y is +1bp @ 2.872% while the 30y hovers little changed @ 3.910%.
- A flatter curve is in the works as the 2-10-yr spread trades tighter @ 255.5bps.
- Precious metals are unchanged with gold and silver @ $1233 and $19.60, respectively.
- Consumer credit will cross the wires at 3pm ET.
- Treasuries have tumbled to session lows following the solid nonfarm payroll report (203K actual v. 188K expected) that saw the unemployment rate drop to 7.0% (7.2% previous).
- Selling is having the biggest impact on the yields in the belly of the curve, which are +5.5bps.
- The 5y spiked to 1.530% following the data with trade ticking to its highest levels since the middle of September.
- A similar move in the 10y has action up to 2.920% and approaching the September highs near 3.00%.
- Slight outperformance at the long end has the 30y +4bps @ 3.955%. The yield is now printing at its highest levels since August 2011.
- Selling continues to swing the yield curve steeper with the 2-10-yr spread widening to 262bps.
- Precious metals have been slammed to session lows with gold -$16 @ $1216 and silver -$0.26 @ $19.30.
Dollar Ticks Higher Ahead of Nonfarm Payroll Report
: The Dollar Index clings to small gains near 80.30. Today's session has seen just a 10 cent range as traders opt to remain on hold ahead of the nonfarm payroll report.
- EURUSD is +5 pips @ 1.3670 as action lingers near one-month highs. The single currency has been trapped in a tight 30 pip range, seeing little response to the German factory orders miss (-2.2% MoM actual v. -0.4% MoM expected). Minor resistance rests in the 1.3700/1.3750 area while the 1.3600 region is home to newly formed support.
- GBPUSD is +25 pips @ 1.6360 as trade holds at its best levels since the summer of 2011. The early advance comes after Britain's Halifax PMI topped estimates with a 1.1% MoM advance (0.8% MoM expected) and consumer inflation expectations printed a hot 3.6% (3.1% previous). The 1.6400 area has provided a cap on recent trade while the 1.6200 area is home to some solid support.
- USDCHF is -15 pips @ .8950 as trade nears the October lows (.8900) following the hotter than anticipated Swiss CPI (0.0% MoM actual v. -0.2% MoM expected). The .8900 level will be watched closely as support in that area has held up since the fall of 2011. Swiss foreign currency reserves were also released overnight, ticking up to CHF435.7 bln (CHF434.7 bln previous).
- USDJPY is +30 pips @ 102.10 after buyers stepped up near 101.50 support. Headlines out early this morning suggest Prime Minister Shinzo Abe has called for a summit to ease tensions with China.
- AUDUSD is +10 pips @ .9070 as action ticks higher for a second session. Action has been stuck in a tight 40 pip range as a lack of data and news down under has traders looking elsewhere for opportunity. USDCNY slipped to 6.0818.
- USDCAD is flat @ 1.0650 as trade holds just off its best levels since May 2010 ahead of the Canadian jobs report. The 1.0625 level is home to minor near-term help with 1.0500 being the more important level.
Treasuries Little Changed Ahead of Jobs Report:
- Treasuries hold small gains as traders await this morning's nonfarm payroll report.
- Yesterday's weakness dropped the complex to its fifth loss in the past six sessions, and ran yields to their highest levels since at least September.
- Little change in the 5y has action stuck near 1.475%, a two and a half-month high. Traders will continue to watch the 1.450% area as the ability to hold above that level sets up a potential move towards 1.650%.
- The 10y is -1bp @ 2.852% as action continues to hold above the important 2.800% level. A retest of the September highs near 3.000% is likely on the horizon if the benchmark yield is able to hold that mark following today's report.
- At the long end, the 30y is -1bp @ 3.905%. Yesterday's closed was the highest since August 2010, but trade has still not topped the November 21 high print of 3.938%.
- Curve flattening has developed as the 2-10-yr spread trades 255.5bps.
- Precious metals are lower with gold -$5 @ $1227 and silver -$0.11 @ $19.46.
- Data: Nonfarm payrolls, nonfarm private payrolls, the unemployment rate, hourly earnings, average workweek, personal income and spending, PCE Prices - Core (8:30), Michigan Sentiment (9:55), and consumer credit (15).
- Fed Speak: Chicago's Evans will be on his home turf, taking part in Loyola University's Symposium on "The Federal Reserve at 100" (15).
Strong Data Weighs on Treasuries:
- Modest selling dropped most maturities to their lowest levels since the middle of September as better than expected data fanned tapering fears.
- Q3 GDP - Second Estimate blew past estimates (3.6% actual v. 3.0% expected) thanks to a large build in inventories and initial claims (298K) dropped below the 300K mark for the first time since September 6 as seasonality continued to impact the number.
- Sellers remained in control for the third time in four sessions despite the data quirks.
- The 5y climbed +3.3bps to end the day @ 1.475%, its highest close since September 19. Today's selling ran action back above the 100 dma (1.439%), and has traders eying the 1.650% region if the breakout is able to hold.
- Selling of 10s ran the benchmark yield up +2.1bps to 2.862% with action now testing the final resistance level guarding the September highs near 3.000%.
- Outperformance at the long end saw the 30y tick up 0.9bps to 3.914%. The yield on the long bond posted its highest close since August 2011, and holds just below the November high print of 3.938%.
- Modest steepening of the yield curve saw the 2-10-yr spread widen to 257.5bps.
- Precious metals gave up a good portion of yesterday's gains as gold fell -$21 to $1226 and silver shed $0.48 to near $19.35.
- Tomorrow's Data: Nonfarm payrolls, nonfarm private payrolls, the unemployment rate, hourly earnings, average workweek, personal income and spending, PCE Prices - Core (8:30), Michigan Sentiment (9:55), and consumer credit (15).
- Fed Speak: Chicago's Evans will be on his home turf, taking part in Loyola University's Symposium on "The Federal Reserve at 100" (15).
Dollar Drops to Five-Week Low Ahead of Tomorrow's Jobs Report
: The Dollar Index hovers on session lows near 80.30 as action remains on track to post its worst close since Halloween
. The Index spiked to session highs near 80.80 following this morning's data, but saw steady selling over the remainder of the morning as comments from Mario Draghi sparked a rally in the euro. Action has spent the entire afternoon drifting near 80.30 as trade remains on hold ahead of tomorrow's jobs report
- EURUSD is +70 pips @ 1.3665 as trade readies for its best close since the end of October. The single currency saw some initial selling after the European Central Bank opted to keep its Minimum Bid Rate unchanged at 0.25%, but a rally ensued despite Mario Draghi's attempts to talk down the currency. Mr. Draghi reiterated his prior comments suggesting the ECB has more tools left at its disposal and will not be afraid to act if needed. The 1.3700 area provides the next level of resistance. Eurozone data will see just German factory orders.
- GBPUSD is -60 pips @ 1.6320 with action looking at its worst close in a week. Sterling has been under pressure since this morning's Bank of England rate decision, which saw the central bank hold both its Official Bank Rate and asset purchase program unchanged at their respective 0.50% and GBP375 bln. The decision followed headlines suggesting the UK upped its 2013 growth forecast to 1.4% (0.6% previous) while also raising its 2014 forecast to 2.4% (1.8% previous). A breakdown of minor support in the 1.6300 region sets up a test of more solid support near 1.6200. British data is limited to consumer inflation expectations.
- USDCHF is -55 pips @ .8970 as trade presses lower for a third session. Today's weakness has put the October lows (.8900) on many traders' radars. Switzerland's foreign currency reserves and CPI will be announced tomorrow.
- USDJPY is -65 pips @ 101.70 as sellers remain in control for a third session. The three-day slide comes after action tested the May highs near 103.00, but was unable to move through the level. Minor support in the 101.50 area has so far been able to hold, but a retest of more important support near parity cannot be ruled out.
- AUDUSD is +35 pips @ .9065 as action holds just off the best levels of the session. The hard currency came under pressure following the wider than expected Australian trade deficit (AUD0.53 bln actual v. AUD0.38 bln), but buyers put up a staunch defense near yesterday's lows (.9000) and have been able to maintain control.
- USDCAD is -30 pips @ 1.0650 as trade slides off yesterday's three and a half-year high. Today's selling comes following mixed economic data out of Canada as building permits posted a big beat (7.4% MoM actual v. 1.2% MoM expected) and the closely followed Ivey PMI (53.7 actual v. 59.0 expected, 62.8 previous) fell well short of estimates. Recent gains have made for a rather steep move so a pullback into the 1.0500 support area cannot be ruled out. Canada's employment change, unemployment rate, and labor productivity will cross the wires tomorrow.