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Update: 2016-02-09 15:55:08 ET

Moving the Market
  • U.S. Dollar Index makes 10-week low of 96.11
  • December JOLTS -- Job Openings: Actual 5.6M, Prior 5.431M
  • December Wholesale Inventories: Actual -0.01%, Briefing.com consensus 0.0%, Prior -0.3%
  • $24bln 3-year note auction: High yield: 0.844%, Bid-to-cover: 2.74, Indirect bid: 41.5%, Direct bid: 15.0% 

2/9/2016
3:35:32 ET
10-Year:+6/32 1.73    GNMAs:     EUR/USD:1.1289    USD/JPY:115.06   

Yield Curve Flattens

  • U.S. Treasuries traded in ranges today but the yield curve flattened as equities found buying interest and the U.S. Dollar Index fell to a multi-month low before rebounding mid-session (-0.51% to 96.08). Wholesale inventories unexpectedly declined in December and the 3-year note auction was not very strong, although yields have fallen so much in the past few weeks that this could be expected. Tomorrow, Fed Chair Yellen will testify before the House Financial Services Committee (10:00 ET). The S&P 500 is now up 0.12% to 1,855.7
  • Yield Check:
    • 2-yr: +1 bp to 0.68%
    • 5-yr: -1 bp to 1.15%
    • 10-yr: -2 bps to 1.73%
    • 30-yr: -2 bps to 2.55%
  • News:
    • Wholesale inventories fell 0.1% in December, missing the Briefing.com consensus for no change but improving upon November's 0.3% slide
      • Inventories of durable goods in December declined 0.3% after a 0.4% decline in November. The December downturn was governed by a 0.5% decline in machinery inventories and a 4.4% decline in metals inventories. The only areas that saw inventories increase were automotive (+0.3%), electrical (+1.0%), and miscellaneous durables (+1.6%)   
      • Inventories of nondurable goods increased 0.1% in December after declining 0.3% in November. The uptick was paced by a 0.8% increase in inventories for drugs and a 2.1% increase in apparel inventories. The only nondurable areas that saw inventories decline in December were petroleum (-7.8%) and alcohol (-1.0%)
    • December JOLTS Job Openings 5.607 mln vs 5.431 mln last month
    • The $24 bln 3-year note auction was met with tepid demand:
      • High yield: 0.844%
      • Bid-to-cover: 2.74
      • Indirect bid: 41.5%
      • Direct bid: 15.0%
  • Commodities:
    • WTI crude: -4.55% to $28.34/bbl.
    • Gold: -0.73% to $1,189.10/troy oz.
    • Copper: -2.58% to $2.0365/lb.
  • Currencies:
    • EUR/USD: +0.91% to $1.1289
    • USD/JPY: -0.45% to 115.06
  • Data out Wednesday:
    • MBA Mortgage Index for the week ending 2/6 (07:00 ET)
    • Crude Inventories for the week ending 2/6 (10:30 ET)
    • January Treasury Budget (14:00 ET)
  • Treasury Auction:
    • $23 bln 10-year note auction (results at 13:00 ET)
  • Fed Speakers:
    • Fed Chair Yellen (FOMC voter) testifies before House Financial Services Committee (10:00 ET)
    • San Francisco Fed President Williams (non-FOMC voter) (13:30 ET)

 
2/9/2016
2:51:59 ET
10-Year:+7/32 1.72    GNMAs:     EUR/USD:1.1291    USD/JPY:114.90   

Dollar Falls Again

  • The U.S. Dollar Index fell 0.55% to 96.04 today after wholesale inventories reportedly declined by 0.1% in December, missing the Briefing.com consensus for no change. The dollar index traded a fresh multi-month low 
  • EUR/USD: +0.93% to 1.1291
    • German industrial production fell 1.2% m/m in December, missing analyst expectations for a rebound from the 0.1% slide in November. Construction and energy led the decline
    • Germany's trade surplus narrowed to EUR 18.8 bln in December from EUR 20.5 bln in November
  • GBP/USD: +0.27% to $1.4460
    • The U.K.'s trade deficit narrowed to GBP -9.92 bln in December from GBP -11.5 bln in November
    • The BRC Retail Sales Monitor rose 2.6% in the year to January, beating expectations and the 0.1% y/y gain in December
    • Bank of England Deputy Governor Jon Cunliffe expressed concerns about credit growth in the U.K. He warned that if lending growth again exceeded output growth, action would be warranted "sooner rather than later"
  • USD/CHF: -1.47% top 0.9723
    • Switzerland's unemployment rate remained at 3.4% in January, as expected
  • USD/JPY: -0.60% to 114.90
    • A JPY 800 bln JGB auction garnered a bid-to-cover ratio of 3.04
  • USD/CAD: -0.43% to 1.3880
  • AUD/USD: +0.02% to $0.7067
    • Australia's NAB Business Confidence Index fell to 2 in January from 3 in December, as expected
  • NZD/USD: +0.40% to 0.6639

 
2/9/2016
1:49:44 ET
10-Year:+11/32 1.71    GNMAs:     EUR/USD:1.1300    USD/JPY:114.75   

Curve Flattens

  • Treasuries are rallying this afternoon as the S&P 500 drifts back toward session-lows. The index of large-cap U.S. stocks is down 0.83% to 1,838.1
  • Gold is down 0.13% to $1,196.40/troy oz.
  • WTI crude is getting killed, now down 5.79% to $27.98/bbl.
  • The yield curve is flattening with 10's and 30's outperforming 2-years
  • Yield Check:
    • 2-yr: +1 bp to 0.68%
    • 5-yr: -3 bps to 1.13%
    • 10-yr: -4 bps to 1.71%
    • 30-yr: -3 bps to 2.55%
  • The U.S. Dollar Index bounce in our range of support, exactly at the 50% Fibonacci retracement of the 2015 range (95.66). The index sold off from its broken uptrend of the 2014-2015 bull market on Monday, so it remains in jeopardy, but this is the index's best (and last?) chance for a good and sustainable bounce. We are skeptical, but the charts are the charts

 
2/9/2016
1:07:49 ET
10-Year:+6/32 1.73    GNMAs:     EUR/USD:1.1310    USD/JPY:114.83   

Treasury Auction Results

  • $24 bln 3-year note auction
    • Auction results:
      • High yield: 0.844%
      • Bid-to-cover: 2.74
      • Indirect bid: 41.5%
      • Direct bid: 15.0%
    • Average results of prior 12 auctions:
      • High yield: 1.04%
      • Bid-to-cover: 3.23
      • Indirect bid: 48.9%
      • Direct bid: 11.4%

 
2/9/2016
12:17:40 ET
10-Year:+4/32 1.73    GNMAs:     EUR/USD:1.1321    USD/JPY:114.90   

Markets Range-Bound

  • Treasuries have made little net progress in either direction today as the stock market tries to draw a line under a very bad start to the second week of February. The risk-off trade feels extended but the S&P 500 is down 13.5% relative to a 220% gain from its March 2009 low. A typical bear market is 20%. It's hard to call a bottom here without a real sign of capitulation or any technical setups. Fed Chair Janet Yellen will testify in front of the House Financial Services Committee tomorrow (Wednesday) at 10:00 ET and we may hear about how the recent ructions in financial markets have affected her outlook for the path of interest rate policy normalization
  • The U.S. Dollar Index is down 0.80% to 95.80. Our support level at 95.78 has heretofore only produced a dead cat bounce. The January 2015 high is at 95.48 and may need testing. This dollar trend has caught people off-guard and these are levels to watch rather than lines in the sand
  • WTI crude is down 2.16% to $29.04/bbl.
  • Gold is down 0.24% to $1,195.00/troy oz.
  • The S&P 500 is down 0.36% to 1,846.4
  • Yield Check:
    • 2-yr: +2 bps to 0.69%
    • 5-yr: -1 bp to 1.15%
    • 10-yr: -1 bp to 1.73%
    • 30-yr: -1 bp to 2.57%

 
2/9/2016
11:41:34 ET
10-Year:05/32 1.735%    GNMAs:     EUR/USD:1.1317    USD/JPY:114.90   

Yen Sees Safe Haven Rally: The Dollar Index has fallen into the 95 area for the first time since October 22. The DXY is down approx 5% since January 29. The move comes ahead of a two day testimony by Fed Chair Janet Yellen. Expectations for the Fed Chair to be dovish are high given the recent market volatility. It remains to be seen if Ms. Yellen will follow through with the expected rhetoric.

  • The euro continues to extend gains as it rallies to the 1.13 level. The single currency has rallied approx 4.5% in the month of February alone as investors see less of a divergence in monetary policy between the U.S. and the ECB. Economic Data was relatively weak as a German Industrial Production number missed expectations. But the Trade Balance from the region was in line with expectations, suggesting the weaker euro is helping offset some of the weak global economies.
  • The pound is showing some signs of holding the 1.44 level. Sterling hit 1.46 on its recent bounce but saw some of those gains erased over the past couple of sessions. It is showing signs of stemming those losses following a Trade Balance report that was in line with expectations.
  • The yen has been at the center of attention today after Japanese equities fell 5%. The safe haven yen saw plenty of bids as it was able to rally to 114 for the first time since November of 2014. We are in some uncharted waters in terms of the chart, with little resistance until 110. So the yen will remain a key item for the markets to watch as it will help determine risk appetite.

 
2/9/2016
11:24:03 ET
10-Year:+3/32 1.74    GNMAs:     EUR/USD:1.1308    USD/JPY:115.12   

Treasury Auction Preview

  • $24 bln 3-year note auction (results at 13:00 ET)
    • Prior auction results:
      • High yield: 1.174%
      • Bid-to-cover: 2.94
      • Indirect bid: 62.8%
      • Direct bid: 9.4%
    • Average results of prior 12 auctions:
      • High yield: 1.04%
      • Bid-to-cover: 3.23
      • Indirect bid: 48.9%
      • Direct bid: 11.4%

 
2/9/2016
10:41:19 ET
10-Year:+5/32 1.73    GNMAs:     EUR/USD:1.1299    USD/JPY:114.84   

Treasuries Range-Bound

  • Treasuries are slightly higher this morning, responding mostly to swings in stocks. The S&P 500 had a sharp rally this morning up to 1,862 but that has faded so far and we are down 0.23% to 1,849.0
  • WTI crude is up 0.44% to $29.82/bbl.
  • Gold is down 0.34% to $1,193.8/troy oz.
  • Yield Check:
    • 2-yr: unch at 0.67%
    • 5-yr: -1 bp to 1.15%
    • 10-yr: -2 bps to 1.73%
    • 30-yr: -1 bp to 2.57%
  • U.S. Dollar Index (Daily): The U.S. Dollar Index is back to its session-low. As we said earlier, we think support is between 95.78 and 95.58. It's a big range, but it's a volatile market. We see corresponding EUR/USD resistance around $1.1350

 
2/9/2016
10:08:40 ET
10-Year:+1/32 1.74    GNMAs:     EUR/USD:1.1267    USD/JPY:115.25   

Wholesale Inventories Miss

  • Wholesale inventories fell 0.1% in December, missing the Briefing.com consensus for no change but improving upon November's 0.3% slide
  • December JOLTS -- Job Openings rose to 5.6 million from 5.431 million in November, calling into question the theory that a recession is imminent. On the other hand, the labor market is a lagging indicator
  • JP Morgan is saying that the European Central Bank could cut its deposit rate to -0.7% from the current -0.3% at its March meeting given new downside risks to reaching its inflation target. This is the most dovish forecast yet and an outlying probability
  • The S&P 500 is up 0.11% to 1,855.4 after trading as low as 1,835.1
  • The U.S. Dollar Index is down 0.44% to 96.14
  • Gold is down 0.65% to $1,190.10/troy oz.
  • WTI crude is up 0.64% to $29.88/bbl.
  • Yield Check:
    • 2-yr: unch at 0.67%
    • 5-yr: -1 bp to 1.15%
    • 10-yr: -1 bp to 1.74%
    • 30-yr: unch at 2.58%

 
2/9/2016
9:06:45 ET
10-Year:+12/32 1.71    GNMAs:     EUR/USD:1.1288    USD/JPY:114.42   

TPlex Guns for Overnight Highs

  • Treasuries are ripping higher again this morning as global equities were unable to hold Monday's afternoon gains. The perceived futility of central bank actions at this point -- both the euro and Japanese yen have gained sharply against the U.S. dollar in recent sessions despite their leaderships' attempts at depreciation -- is hurting sentiment for risky assets. Not only are the local currencies of the activist central banks not declining, but the banking sectors in the eurozone and Japan may be hurting due to negative rates as well. This could be construed by some investors as showing that the lower bound for policy rates is actually higher than was thought just a few weeks ago
  • The U.S. Dollar Index made a fresh 10-week low at 95.99 this morning. The index gave up important support at 96.60 this morning and we see the next support levels at 95.77 and 95.66 (the 61.8% Fibonacci retracement of the 2015 range). 95.48 was an old and perhaps important high from January 2015
  • Gold is still down despite the weaker dollar, losing 0.02% to $1,997.70/troy oz.
  • WTI crude is down 0.84% to $29.44/bbl.
  • The S&P 500 is indicated to open down 0.92% to 1,835.4
  • Yield Check:
    • 2-yr: -2 bps to 0.65%
    • 5-yr: -3 bps to 1.13%
    • 10-yr: -4 bps to 1.71%
    • 30-yr: -3 bps to 2.54%

 
2/9/2016
8:17:13 ET
10-Year:+3/32 1.74    GNMAs:     EUR/USD:1.1235    USD/JPY:114.92   

European Government Debt Declines

  • Eurozone sovereign yields (which move inversely to price) are moving higher this morning as investor appetite for safe-haven assets appears to have reached a limit. Yields in the periphery have not even participated in the flight to quality in recent sessions as investors in eurozone government bonds have become more selective. Portugal's 10-year yield touched its highest level since October 2014. European bank stocks have been decimated in recent days as negative short rates make investors concerned about bank profitability. There are also debt securities called additional Tier 1 (AT1) bonds which are convertible to equity in times of crisis and these securities have come under heavy selling pressure in recent sessions
  • EUR/USD is trading at $1.1247 this morning and this has to have the European Central Bank concerned. Low interest rates in the eurozone may have made the euro popular as a funding currency in carry trades, but market turmoil tends to induce unwinding of those positions. A stronger euro will not help the ECB get back to its 2% inflation target. The currency pair has been bumping up against the 61.8% Fibonacci retracement of its 2015 range ($1.1257) in recent days. Breaking through there may lead to more upside
  • Economic data:
    • German industrial production fell 1.2% m/m in December, missing analyst expectations for a rebound from the 0.1% slide in November. Construction and energy led the decline
      • Germany's trade surplus narrowed to EUR 18.8 bln in December from EUR 20.5 bln in November
    • The U.K.'s trade deficit narrowed to GBP -9.92 bln in December from GBP -11.5 bln in November
      • The BRC Retail Sales Monitor rose 2.6% in the year to January, beating expectations and the 0.1% y/y gain in December
      • Bank of England Deputy Governor Jon Cunliffe expressed concerns about credit growth in the U.K. He warned that if lending growth again exceeded output growth, action would be warranted "sooner rather than later"
    • Switzerland's unemployment rate remained at 3.4% in January, as expected
  • Yield Check:
    • France, 10-yr OAT: +4 bps to 0.64%
    • Germany, 10-yr Bund: +2 bps to 0.24%
    • Greece, 10-yr note: +59 bps to 10.71%
    • Italy, 10-yr BTP: +5 bps to 1.75%
    • Portugal, 10-yr note: +24 bps to 3.42%
    • Spain, 10-yr ODE: +2 bps to 1.80%
    • U.K., 10-yr Gilt: +1 bp to 1.42%

 
2/9/2016
7:01:17 ET
10-Year:+3/32 1.74    GNMAs:     EUR/USD:1.1221    USD/JPY:115.0   

Treasuries Mostly Unchanged

  • U.S. Treasuries are hovering near the unchanged mark this morning as markets brace for Fed Chair Yellen's semi-annual testimony to Congress which begins on Wednesday. Japanese stocks were hit hard overnight as the yen continued to flaunt its sudden independence from the Bank of Japan, rallying to its highest level since late 2014. The Nikkei ended down 5.40% to 16,085.44. Japanese banks have been hit hard, as have European and U.S. banks in recent days, as concerns about flatter yield curves impairing net interest margins take hold. The U.S. Dollar Index is down 0.04% to 96.53 and gold has retreated from multi-month highs, declining 0.25% to 1,194.90/troy oz. WTI crude is up 0.64% to $29.88/bbl. The S&P 500 is indicated to open down 0.59% to 1,842.0
  • Yield Check:
    • 2-yr: -2 bps to 0.65%
    • 5-yr: -2 bps to 1.14%
    • 10-yr: -1 bp to 1.74%
    • 30-yr: unch at 2.57%
  • International News:
    • German industrial production fell 1.2% m/m in December, missing analyst expectations for a rebound from the 0.1% slide in November. Construction and energy led the decline
      • Germany's trade surplus narrowed to EUR 18.8 bln in December from EUR 20.5 bln in November
    • The U.K.'s trade deficit narrowed to GBP -9.92 bln in December from GBP -11.5 bln in November
      • The BRC Retail Sales Monitor rose 2.6% in the year to January, beating expectations and the 0.1% y/y gain in December
      • Bank of England Deputy Governor Jon Cunliffe expressed concerns about credit growth in the U.K. He warned that if lending growth again exceeded output growth, action would be warranted "sooner rather than later"
        • The Financial Times reported today that hedge funds are taking short positions in stocks of U.K. homebuilders
    • Switzerland's unemployment rate remained at 3.4% in January, as expected
    • The 10-year JGB (Japanese government bond) yield touched 0.00% for the first time ever
      • A JPY 800 bln JGB auction garnered a bid-to-cover ratio of 3.04
      • The 5-year JGB yield is now lower than that of the 2-year JGB. Japanese government yields have been plunging since January 29, when the Bank of Japan joined the club of central banks with negative policy rates
    • Australia's NAB Business Confidence Index fell to 2 in January from 3 in December, as expected
    • In the U.S., the National Federation of Independent Business's small business optimism index fell more than expected to 93.9 in January from 95.2 in December
  • Data out Today:
    • December Wholesale Inventories (10:00 ET)
  • Treasury Auction:
    • $24 bln 3-year note auction (results at 13:00 ET)

 
2/8/2016
3:26:16 ET
10-Year:+27/32 1.74    GNMAs:     EUR/USD:1.1202    USD/JPY:115.53   

Treasuries Rocket Higher

  • The Treasury market rallied sharply in a curve-flattening trade today as a investors scrambled for safe-haven assets from gold to Bunds amidst worries about major international banks. Today's session had no scheduled market moving events but the Treasury will auction off $62 bln in coupon securities this week and Fed Chair Yellen will appear in front of Congress on Wednesday and Thursday. Gold touched its highest level since June 2015. The U.S. Dollar Index lost 0.42% to 96.62
  • Yield Check:
    • 2-yr: -6 bps to 0.67%
    • 5-yr: -8 bps to 1.16%
    • 10-yr: -9 bps to 1.74% 
    • 30-yr: -10 bps to 2.57%
  • News:
    • Global equities sold off as worries about the effects of negative policy rates about lenders' interest rate margins in the eurozone and a flattening yield curve in the U.S. led stock markets to break technical support levels
      • S&P 500: -2.49% to 1,833.17
      • Nasdaq Composite: -2.91% to 4,236.14
      • Euro Stoxx 50: -3.27% to 2,785.17
      • Nikkei 225: -3.92% to 17,004.30
    • The 5 and 10-year Treasury note yields touched 52-week lows and the 30-year Treasury bond yield traded a nine-month low
    • Fed Chair Yellen's semi-annual testimony to Congress is on Wednesday and Thursday
  • Commodities:
    • WTI crude: -2.75% to $30.04/bbl.
    • Gold: +3.09% to $1,193.50/troy oz.
    • Copper: -0.57% to $2.091/lb.
  • Currencies:
    • EUR/USD: +0.38% to $1.1202
    • USD/JPY: -1.11% to 115.53
  • Data out Tuesday:
    • December Wholesale Inventories (10:00 ET)
  • Treasury Auction:
    • $24 bln 3-year note auction (results at 13:00 ET)