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Update: 2016-07-27 11:55:24 ET

Moving the Market

Short end underperforms ahead of FOMC policy decision at 14:00 ET (no change expected)

  • June Durable Orders -4.0% month-over-month (Briefing.com consensus -1.0%); ex-transportation -0.5% month-over-month (Briefing.com consensus 0.2%)
  • June Pending Home Sales +0.2% (Briefing.com consensus +1.1%)

7/27/2016
11:10:00 ET
10-Year:+06/32 1.542%    GNMAs:     EUR/USD:1.0991    USD/JPY:105.62   
  • The Dollar Index continues to hold near the 97 level as we await the latest Fed statement. The market feels pretty comfortable in what it expects which means we will need to pay close attention to make sure the Fed does not deviate at all. In general an uptick in commentary on the economy and jobs is expected in what will be a precursor for a rate hike in one of the upcoming meetings. This could be further emphasized if there is a dissent (most likely George) or two (possibly Mester). Inflation commentary remains a wild card. Economic data ahead of the report was disappointing with the Durable Orders number seeing a second straight weak performance.
  • The euro continues to run into resistance at the 1.10 level as we await the Fed directive. Germany surveys continue to come in better than expected despite the recent terror attacks and Brexit vote as the GfK consumer survey beat expectations. Money supply and Private Loan Growth in the region were in line with expectations.
  • The pound continues to hold the 1.31 area on some mixed data. The U.K. preliminary look at Q2 GDP came in better than expected, giving us some of the first hard data on how the region was impacted by the Brexit vote. But the sentiment data remains weak with a Realized Sales survey missing expectations by a wide margin. The debate on the perceived vs actual impact from the Brexit will continue in the coming months/quarters.
  • The yen saw some aggressive selling overnight as Prime Minister Sihinzo Abe surprised markets by announcing a JPY 28 trl (approx $265 bln) stimulus package. This was larger than had been rumored and the timing was certainly more forward than expected. But there still remains questions on the package as more details will not be released until August 2. The general thesis is that JPY 13 trl will be earmarked for infrastructure spending and loans. It is also expected to span a few years as one budget would be simply to large to accommodate such an uptick in spending. The ball now moves to the Bank of Japan court in which it is expected to announce a bond purchase program in order to assist the stimulus package.

 
7/27/2016
10:06:35 ET
10-Year:+5/32 1.549    GNMAs:     EUR/USD:1.1003    USD/JPY:105.78   
  • U.S. Treasuries hover near their best levels of the session with the long end showing the largest gains while short-dated issues hover just above their flat lines. The underperformance up front is not surprising as participants factor in the possibility of hawkish undertones in the FOMC Statement that could spark a sell off. The FOMC Statement will be released at 14:00 ET.
  • Treasuries barely budged in reaction to the just-released Pending Home Sales report for June (+0.2%; Briefing.com consensus +1.1%), which missed estimates.
  • Yield Check:
    • 2-yr: UNCH at 0.75%
    • 5-yr: UNCH at 1.14%
    • 10-yr: -2 bps to 1.55%
    • 30-yr: -2 bps to 2.26%

 
7/27/2016
8:34:23 ET
10-Year:+5/32 1.550    GNMAs:     EUR/USD:1.1002    USD/JPY:105.60   
  • U.S. Treasuries have inched up following the release of weaker than expected Durable Orders for June. The report showed a headline decrease of 4.0% (Briefing.com consensus -1.0%) while Durable orders ex-transportation declined 0.5% (Briefing.com consensus 0.2%).
  • The 10-yr note climbed ahead of the news, hitting a session high immediately after the data crossed. Similarly, the 30-yr bond moved to a fresh high while short-dated issues remain near their flat lines.
  • Yield Check:
    • 2-yr: -1 bp to 0.75%
    • 5-yr: UNCH at 1.14%
    • 10-yr: -1 bp to 1.55%
    • 30-yr: -2 bps to 2.26%

 
7/27/2016
8:07:05 ET
10-Year:-1/32 1.571    GNMAs:     EUR/USD:1.0993    USD/JPY:105.69   

European Debt Meets Modest Demand

  • Market participants have shown demand for sovereign debt this morning with yields slipping across the region. Concerns about Italian banks have been quickly relegated to the backburner after it was reported that Banca Monte dei Paschi di Sienna is looking to raise EUR5 billion by the end of this week. In other banking news, Deutsche Bank has slumped more than 3.0% after disappointing results.
  • Economic data:
    • Eurozone Private Sector Loans +1.7% year-over-year, as expected (previous 1.6%) and M3 Money Supply +5.0% year-over-year, as expected (last 4.9%)
    • Germany's August GfK Consumer Climate 10.0 (expected 9.9; last 10.1). June Import Price Index +0.5% month-over-month (expected 0.6%; last 0.9%); -4.6% year-over-year, as expected (last -5.5%)
    • UK's Q2 GDP +0.6% quarter-over-quarter (expected 0.4%; last 0.4%); +2.2% year-over-year (consensus 2.0%; last 2.0%). July CBI Distributive Trades Survey -14 (expected 1; last 4)
    • France's June PPI +0.4% month-over-month and July Consumer Confidence ticked down to 96 from 97, as expected
    • Swiss June Consumption Indicator 1.34 (last 1.24)
    • Spain's June Retail Sales +5.6% year-over-year (consensus 3.3%; last 2.3%)
    • Italy's July Consumer Confidence 111.3 (consensus 109.2; last 110.2) and Business Confidence 103.1 (expected 101.8; previous 102.9)
  • Yield Check:
    • France, 10-yr OAT: -2 bps to 0.18%
    • Germany, 10-yr Bund: -1 bp to -0.04%
    • Greece, 10-yr Note: +2 bps to 8.01%
    • Italy, 10-yr BTP: -1 bp to 1.25%
    • Portugal, 10-yr PGB: UNCH at 3.02%
    • Spain, 10-yr ODE: -1 bp to 1.11%
    • UK, 10-yr Gilt: -4 bps to 0.79%

 
7/27/2016
7:46:49 ET
10-Year:UNCH 1.569    GNMAs:     EUR/USD:1.0995    USD/JPY:105.70   

Treasuries Maintain Slim Ranges Ahead of Fed

  • U.S. Treasuries spent the overnight session inside narrow ranges, seeing some selling after reports from Japan indicated the country's government is preparing a JPY28 trillion fiscal stimulus package. However, that brief wave of selling has been retraced completely over the past few hours, leaving the 10-yr note just below its flat line. The long bond holds a slim gain while the 5-yr note hovers in the red ahead of the latest FOMC policy decision, which will be released at 14:00 ET.
  • Australia reported its latest inflation data overnight with Q2 CPI rising 0.4% quarter-over-quarter, as expected (last -0.2%); +1.0% year-over-year (consensus 1.1%; last 1.3%). Q2 Trimmed Mean CPI increased 0.5% quarter-over-quarter (expected 0.4%; last 0.2%)
  • The S&P 500 futures hold a modest gain while Nasdaq futures outperform thanks to better than expected earnings from Apple (AAPL). The Dollar Index has edged up 0.1% while crude oil is down 0.5% at $42.70/bbl. Gold futures are little changed at $1327.60/ozt.
  • Yield Check:
    • 2-yr: UNCH at 0.76%
    • 5-yr: +2 bps to 1.16%
    • 10-yr: UNCH at 1.57%
    • 30-yr: -1 bp to 2.28%
  • Economic data on Tap:
    • June Durable Orders (Briefing.com consensus -1.0%) and Durable Orders ex-transportation (Briefing.com consensus 0.2%) at 8:30 ET
    • June Pending Home Sales (Briefing.com consensus 1.1%) at 10:00 ET
    • Crude Inventories at 10:30 ET
    • July FOMC Rate Decision at 14:00 ET (no policy change expected)

 
7/26/2016
3:07:23 ET
10-Year:+3/32 1.564    GNMAs:     EUR/USD:1.0986    USD/JPY:104.63   

Treasuries Hold Ground Ahead of Fed

  • U.S. Treasuries held solid gains overnight after a cautious session in Asia, but slow and steady selling began taking hold in the early morning hours. That selling continued in morning action with the complex finding support right after a $34 billion, 5-yr auction, which was nearly as weak as yesterday's 2-yr offering. Today's auction drew a bid-cover ratio of 2.27, representing the lowest level since September 2009.
  • Market participants have been reluctant to dive into short-dated debt in case the tone of tomorrow's policy statement from the Federal Reserve begins setting the stage for a rate hike before the end of 2016. Currently, the fed funds futures market estimates that the next rate hike will take place in March (56.2%), while the implied likelihood of a hike tomorrow sits at a lowly 3.6%.
  • Yield Check:
    • 2-yr: -1 bp to -0.76%
    • 5-yr: UNCH at 1.14%
    • 10-yr: -1 bp to 1.56%
    • 30-yr: -1 bp to 2.28%
  • Commodities:
    • WTI crude: -0.5% to $42.91/bbl
    • Gold: +0.1% to $1320.80/ozt
    • Copper: +0.5% to $2.23/lb
  • Currencies:
    • EUR/USD: -0.1% to 1.0987
    • USD/JPY: -1.1% to 104.62
  • Data out Wednesday:
    • MBA Mortgage Index at 7:00 ET (prior -1.3%)
    • June Durable Orders (Briefing.com consensus -1.0%) and Orders ex-transportation (Briefing.com consensus 0.2%) at 8:30 ET
    • June Pending Home Sales (Briefing.com consensus 1.1%) at 10:00 ET
    • Crude Inventories at 10:30 ET
    • July FOMC Rate Decision at 14:00 ET (no policy change expected)