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Update: 2015-05-22 15:55:08 ET

Moving the Market

-- AprilCPI: Actual +0.1%, Briefing.com Consensus +0.1%, Prior +0.2%

-- April Core CPI: Actual +0.3%, Briefing.com Consensus 0.2%, Prior 0.2%

-- Fed Chair Yellen speaking in Providence: Fed will likely raise rates this year if economy grows as FOMC expects; economy will accelerate from slowdown in 1st quarter; economy still faces headwinds from persistently low business investment and energy sector weakness; will be several years before Fed funds is back to normal level


5/22/2015
3:23:39 ET
10-Year:-5/32 2.21    GNMAs:     EUR/USD:1.1013    USD/JPY:121.54   
Governments Drop on Core CPI Beat
  • Treasuries declined today in a curve-flattening trade after higher-than-expected Core CPI data was released for the month of April
  • Yield check:
    • 2-yr: +3 bps to 0.61%
    • 5-yr: +5 bps to 1.56%
    • 10-yr: +2 bps to 2.21%
    • 30-yr: unch at 2.98%
  • News:
    • The Core CPI rose 0.3% m/m in April, greater than the Briefing.com consensus of +0.2%. The increase in March was only 0.2%. 
      • Headline CPI rose 0.1%, in line with expectations and lower than the +0.2% from March
      • There were no outlying components in the core CPI data. Price growth was fairly universal across all consumption sectors. That included a 0.3% increase in shelter costs and a 0.7% increase in medical care prices, which was the largest monthly increase since January 2007
    • Fed Chair Janet Yellen spoke in Providence, RI
      • She said that the first rate hike would come this year if the economy performs as the FOMC expects
      • After the first increase, Yellen expects the pace to be gradual
      • She said that the economy still faces headwinds from persistently low business investment and energy sector weakness and that it will be several years before Fed funds is back to normal level
  • Commodities:
    • WTI crude: -1.53% to $69.79/bbl
    • Gold: +0.11% to $1,205.40/troy oz.
    • Copper: -1.67% to $2.801/lb.
  • Currencies:
    • EUR/USD: -0.87% to $1.1013
    • USD/JPY: +0.41% to 121.54
  • Week Ahead:
    • Monday: Cleveland Fed President Mester (non -FOMC voter) speaks on 'The Influence of Research on Financial Stability Policy' (09:10 ET); Fed Vice Chair Fischer (FOMC voter) speaks on 'Global Economic Developments' (11:30 ET)

    • Tuesday: April Durable Goods Orders and Durable Goods Orders ex transportation (08:30 ET); March Case-Shiller 20-City Index (09:00 ET); March FHFA Housing Price Index(09:00 ET); April New Home Sales (10:00 ET); May Consumer Confidence (10:00 ET);F ed Vice Chair Fischer speaks on 'The Federal Reserve and the Global Economy'( 12:30 ET); $26 billion 2-year note auction (13:00 ET); Richmond Fed President Lacker (FOMC voter) gives speech, 'From Country Banks to SIFIs: The 100-Year Quest for Financial Stability' (20:10 ET)

    • Wednesday: MBA Mortgage Index for the week of 5/23 (07:00 ET); $35 billion 5-year note auction (13:00 ET)

    • Thursday: San Francisco Fed President Williams (FOMC voter) speaks at Banking Supervision and Regulation joint conference (02:20 ET); Initial Jobless Claims for the week of 5/23 and Continuing Jobless Claims for the week of 5/16 (08:30 ET); April Pending Home Sales (10:00 ET); Natural Gas Inventories for the week of 5/23 (10:30 ET); Crude Inventories for the week of 5/23 (11:00 ET); $29 billion 7-year note auction (13:00 ET); Minneapolis Fed President Kocherlakota (non-FOMC voter) speaks on monetary policy (14:45 ET) 
    • Friday: Q1 GDP - Second Estimate and GDP Deflator - Second Estimate (08:30 ET); May Chicago PMI (09:45 ET); May Michigan Sentiment - Final (10:00 ET)

 
5/22/2015
2:30:43 ET
10-Year:-5/32 2.21    GNMAs:     EUR/USD:1.1008    USD/JPY:121.57   
Dollar Gains 3% on Week
  • The U.S. Dollar Index jumped by a full percentage point this morning after the Core Consumer Price Index for April rose 0.3%. The Briefing.com consensus called for +0.2%. The Headline CPI grew 0.1%, in line with the Briefing.com consensus but lower than the +0.2% in March
    • Higher prices mean sooner and higher (rather than lower and slower) rate hikes and therefore greater returns to owning dollars relative to other currencies
    • The Dollar Index is currently trading up 1.05% to 96.26
  • EUR/USD: -0.93% to 1.1006
    • Germany's Ifo Business Climate Index fell to a better-than-expected 108.5 in May from 108.6 in April
  • GBP/USD: -1.23% to 1.5470
    • The Bank of England's Deputy Governor, Minouche Shafik, said that the headwinds to inflation and economic growth in the U.K. are transitory and will subside over the next few years
  • USD/JPY: +0.42% to 121.56
  • USD/CHF: +0.82% to 0.9444
  • USD/CAD: +0.90% to 1.2309
  • AUD/USD: -1.05% to $0.7812
  • NZD/USD: -0.67% to 0.7302

 
5/22/2015
1:32:57 ET
10-Year:-5/32 2.21    GNMAs:     EUR/USD:1.1016    USD/JPY:121.54   
Yield Curve Flattens Further
  • Fed Chair Janet Yellen spoke this afternoon in Providence, RI. 
    • She said that the first rate hike would come this year if the economy performs as she expects
    • After the first increase, she expects the pace to be gradual
    • Yellen emphasized the data dependence of the FOMC's decisions
  • Yield check:
    • 2-yr: +5 bps to 0.63%
    • 5-yr: +5 bps to 1.57%
    • 10-yr: +2 bps to 2.20%
    • 30-yr: -2 bps to 2.97%
  • REMEMBER: TREASURIES CLOSE EARLY. 14:00 ET for cash and 16:15 ET for contracts

 
5/22/2015
12:30:38 ET
10-Year:-9/32 2.225    GNMAs:     EUR/USD:1.1032    USD/JPY:121.46   
Treasuries Head Back Toward Lows
  • Government notes and bonds of all maturities are trading lower after Core CPI for April rose 0.3% versus the Briefing.com consensus of 0.2%
  • Over the past 3 months, the core CPI has risen at a 2.6% annualized rate
  • The front end and belly of the curve are suffering the worst losses, with the 5-year note leading the way down
  • Fed fund futures are now pricing in a 48% probability of a rate hike by the October FOMC meeting, versus 39% yesterday
  • Somewhat counterintuitively, gold sold off on the announcement of the CPI's, as the dollar rallied sharply and yields (the opportunity cost of holding commodities) climbed
    • Gold for June delivery has recovered its losses and is now up 0.13% to $1,205.70/troy oz.
  • Yield check:
    • 2-yr: +4 bps to 0.62%
    • 5-yr: +6 bps to 1.58%
    • 10-yr: +3 bps to 2.23%
    • 30-yr: unch at 2.99%

 
5/22/2015
11:27:29 ET
10-Year:-3/32 2.204    GNMAs:     EUR/USD:1.1037    USD/JPY:121.38   
Pre-Holiday Trade
  • Treasuries are bouncing from their post-CPI lows, but the yield curve continues to flatten. The trade has been quite slow as we head into Memorial Day weekend
  • Yield check:
    • 2-yr: +3 bps to 0.61%
    • 5-yr: +5 bps to 1.56%
    • 10-yr: +1 bp to 2.20%
    • 30-yr: -2 bps to 2.97%
  • Stocks are slipping somewhat here, with the S&P 500 down 0.15% to 2,127.68
  • WTI crude is sinking back down, losing 1.81% to 59.63
  • The cash bond market will close at 2:00 ET and the CME will close interest rate futures at 16:15 ET

 
5/22/2015
11:08:24 ET
10-Year:-05/32 2.171%    GNMAs:     EUR/USD:1.1026    USD/JPY:121.46   
April Core CPI hotter than expected: The Dollar Index was able to rally back to the 96 level for the first time since April 29. The move came following the release of April CPI data which showed the Core number come in slightly hotter than expectations (+0.3% vs +0.2% Briefing.com consensus). The higher inflation figure has the market once again looking at a potential rate hike in 2015. Expectations have moved to the potential for a September hike but that outlook had been weakening in light of some weaker economic data.
  • The euro slipped to 1.1030 in the face of the dollar rally. Adding to the pressure on the single currencies was rumors that the EU is looking into the potential for a parallel currency for Greece. In addition comments from ECB President Mario Draghi that economic growth remains weak has added to expectations for an uptick in bond purchases by the central bank. 1.0942 stands as the 50-sma for the euro and will set up as a key support area moving forward. 
  • The pound continues to straddle the 200 sma (1.5573). Cable had moved back above the level yesterday but the strong dollar is forcing it lower at the moment. 1.54 will set up as a key level for support if selling continues. 
  • The yen remains one of the key currencies in markets as it slides to multi-month lows and closes in on a test for the current multi-year low of 122.02 set back on March 10. What makes this move all the more interesting is that the country posted better than expected GDP and PMI numbers earlier in the week. And then followed it up last night with its central bank leaving rates and purchases programs unchanged, as wifely expected. But also raising its economic outlook and having BoJ Governor Kuroda saying that further easing as unlikely at the moment. All these factors would point to an increase in yen strength. Yet it still has been forced lower against greenback.

 
5/22/2015
10:51:13 ET
10-Year:-5/32 2.21    GNMAs:     EUR/USD:1.1030    USD/JPY:121.40   
10-Years
  • The 10-year note yield has found support around 2.17%, its 200-day moving average (green line) and the 38.2% fibonacci retracement of last year's move down in yield (which is actually 2.18%). There is also potentially support from the 21-day moving average (yellow line) which is rising rapidly. On the other hand, the downtrend of the decline in yields that began around Christmas of 2013 has proved to be strong resistance over the past 2 weeks. On balance, we think the picture points to higher yields, but the framework is more useful than the forecast


 
5/22/2015
10:07:41 ET
10-Year:-9/32 2.22    GNMAs:     EUR/USD:1.1018    USD/JPY:121.48   
Treasuries Back to Lows
  • Treasuries are trading at their lows of the session after a larger-than-expected increase in the Core CPI in April has induced renewed fears of rate hikes. Unlike much of the recent selling in the Treasury complex, the losses are concentrated in the 5-year note
  • Yield check:
    • 2-yr: +4 bps to 0.62%
    • 5-yr: +6 bps to 1.57%
    • 10-yr: +3 bps to 2.22%
    • 30-yr: +1 bp to 3.00%
  • The U.S. Dollar Index is up 0.94% on the day to 96.14. Even the Japanese yen is losing against the dollar by 0.36% 

 
5/22/2015
9:35:04 ET
10-Year:-4/32 2.20    GNMAs:     EUR/USD:1.1033    USD/JPY:121.44   
Governments Still Lower After CPI Data
  • Treasury yields remain higher at the U.S. equity open after the Core CPI rose 0.3% m/m in April, greater than the Briefing.com consensus of +0.2%. Headline CPI rose 0.1%, in line with expectations and lower than the +0.2% from March. This was the first and last data release today. The announcement moved the 5-year note yield up 6 basis points. The 2-year note, which has been relatively unscathed by the past month's repricing of fixed-income assets, saw its yield rise 4 basis points
  • Yield check:
    • 2-yr: +3 bps to 0.61%
    • 5-yr: +5 bps to 1.56%
    • 10-yr: +1 bp to 2.20%
    • 30-yr: -2 bps to 2.97%
  • U.S. equity indices initially sold off on the news, but have recovered somewhat and the S&P 500 is now down only 0.16% to 2,127

 
5/22/2015
8:15:50 ET
10-Year:+7/32 2.17    GNMAs:     EUR/USD:1.1169    USD/JPY:120.69   
European Sovereigns Rally
  • The German Ifo Business Climate Index fell to 108.5 in May from 108.6 in April, but beat consensus estimates
    • German GDP rose 0.3% m/m in the first quarter of 2015, in line with estimates and the same as the growth rate in Q4 2014
  • European Central Bank President Mario Draghi spoke in Portugal and expressed optimism about the outlook for the eurozone, while encouraging national politicians to pursue structural reform 
  • The Bank of England's Deputy Governor, Minouche Shafik, said that the headwinds to inflation and economic growth in the U.K. are transitory and will subside over the next few years
    • She also downplayed the sluggish productivity growth in the U.K.'s economy
  • Yield check:
    • France, 10-yr OAT: -4 bps to 0.88%
    • Germany, 10-yr Bund: -4 bps to 0.60%
    • Greece, 10-yr note: +10 bps to 11.20%
    • Italy, 10-yr BTP: -1 bp to 1.83%
    • Portugal, 10-yr note: -2 bps to 2.38%
    • Spain, 10-yr Bono: -3 bps to 1.75%
    • U.K., 10-yr Gilt: -7 bps to 1.92%

 
5/22/2015
7:52:59 ET
10-Year:+6/32 2.17    GNMAs:     EUR/USD:1.1172    USD/JPY:120.91   
Yields Fall in Sympathy with European Sovereigns
  • Treasuries rallied overnight as European yields declined. The yield curve flattened with 2's/10's coming in by 2 bps to 160 bps and 5's/30's declining 3 bps to 145 bps
  • Yield check:
    • 2-yr: -1 bp to 0.57%
    • 5-yr:-1 bp to 1.50%
    • 10-yr: -3 bps to 2.17%
    • 30-yr: -4 bps to 2.95%
  • International News:
    • Germany's Ifo Business Climate Index fell to a better-than-expected 108.5 in May from 108.6 in April
    • German GDP came out in line with estimates at +0.3% m/m in Q1 2015
    • The Bank of Japan met and maintained its quantitative easing program. The BoJ's governor, Haruhiko Kuroda, said that the central bank is not concerned with soaring asset prices. One of the major Japanese stock exchanges surpassed its high from the Heisei bubble, which peaked in 1989 and left two lost decades in its wake
    • ECB President Mario Draghi spoke in Portugal. He expressed optimism about the economic outlook for the eurozone and encouraged politicians to pursue structural reforms
  • Data out Today:
    • April CPI (08:30 ET)
    • April Core CPI (08:30 ET)

 
5/21/2015
3:31:38 ET
10-Year:+17/32 2.19    GNMAs:     EUR/USD:1.1123    USD/JPY:120.96   
Treasuries Gain Big, Curve Flattens
  • Government notes and bonds rallied sharply today on weaker-than-expected economic data, potentially turning around what had been a very difficult week
  • Yield check:
    • 2-yr: -2 bps to 0.57%
    • 5-yr: -4 bps to 1.51%
    • 10-yr: -6 bps to 2.19%
    • 30-yr: -7 bps to 2.98%
  • News:
    • Initial Jobless Claims for the week ending May 16th were ever-so-slightly worse than expectations at 274K versus the Briefing.com consensus of 270K. The prior week's reading was 264K
      • Continuing Claims declined to 2211K from a downwardly revised 2223K for the prior week. The Briefing.com consensus had called for 2250K
    • The Philadelphia Fed's Business Outlook Survey dropped to 6.7 in May from 7.5 in April. The Briefing.com consensus was 8.0
      • The employment and prices paid components fell while new orders rose
    • Existing home sales declined 3.3% in April to a seasonally-adjusted rate of 5.04 million from an upwardly revised 5.21 million (from 5.19 mln SAAR) in March. The Briefing.com consensus expected existing home sales to increase to 5.24 million
    • The U.S. government auctioned off $13 billion in 10-year TIPS (reopening). The auction tailed over a basis point, but the Treasury market took it in stride
      • High yield: 0.358%
      • Bid-to-cover: 2.33
      • Indirect bid: 67.1%
      • Direct bid: 4.5%
  • Commodities:
    • WTI crude: +2.97% to $60.73/bbl
    • Gold: -0.27% to $1,205.40/troy oz.
    • Copper: +0.74% to $2.85/lb.
  • Currencies:
    • EUR/USD: +0.26% to $1.1123
    • USD/JPY: -0.24% to 120.96
  • Data out Friday:
    • April CPI and Core CPI (08:30 ET)