Bond Market Update

Monday Gains Extended

• U.S. Treasuries continued their upbeat start to the week with a Tuesday advance that endured some early volatility before a finish near session highs. The trading day started with modest gains after a busy night of economic data reporting and a growing sense that the Russia-Ukraine war could be nearing a conclusion. Flash December PMI readings showed an ongoing expansion in Australia's Manufacturing PMI (52.2) while Japan's reading (49.7) remained in contraction. European readings remained anemic with the eurozone's flash Manufacturing PMI (49.2 from 49.6) dipping further into contraction while flash Services PMI (52.6 from 53.6) pointed to ongoing growth. The busy data docket carried into the U.S. session, as the market finally received the Employment Situation report for November (64,000; Briefing.com consensus 30,000), which beat expectations by a solid margin, but it also followed the loss of 105,000 nonfarm payrolls in October. The Retail Sales report for October was released at the same time, showing no headline growth (Briefing.com consensus 0.3%) while sales excluding autos increased 0.4% (Briefing.com consensus 0.3%). Treasuries rallied in immediate reaction to these reports with the 2-yr yield briefly falling to its November low (3.45%), but they reversed just as quickly. The reversal briefly sent the 3-yr note and longer tenors into the red, but the market spent the rest of the session in a slow climb that had the long bond at a fresh high at the close while shorter tenors finished a bit below their highs. Crude oil settled at its lowest level since early 2021 amid growing expectations for Russia's return to the global oil market while the U.S. Dollar Index fell 0.2% to 98.12.
• Yield Check:
  • 2-yr: -3 bps to 3.48%
  • 3-yr: -4 bps to 3.52%
  • 5-yr: -4 bps to 3.69%
  • 10-yr: -3 bps to 4.15%
  • 30-yr: -3 bps to 4.82%

• News:
  • President Trump will address the nation tomorrow at 21:00 ET.
  • President Trump will interview Fed Governor Waller for the Fed Chairman nomination tomorrow, according to The Wall Street Journal.
  • The Atlanta Fed's GDPNow forecast for Q3 GDP was lowered to 3.5% from 3.6% in the latest estimate.
  • The U.S. suspended its tech prosperity deal with the U.K. that was announced in September.
  • National Australia Bank expects the Reserve Bank of Australia to announce 25-basis point rate hikes in February and May.
  • Japan's flash December Manufacturing PMI hit 49.7 (expected 49.0; last 48.7) and flash Services PMI hit 52.5 (last 53.2).
  • Hong Kong's November Unemployment Rate remained at 3.8%.
  • India's flash December Manufacturing PMI hit 55.7 (last 56.6) and flash Services PMI hit 59.1 (last 59.8).
  • Australia's flash December Manufacturing PMI hit 52.2 (last 51.6) and flash Services PMI hit 51.0 (last 52.8). December Westpac Consumer Sentiment was down 9.0% (last 12.8%).
  • New Zealand's November FPI was down 0.4% m/m (last -0.3%).
  • Eurozone's flash December Manufacturing PMI hit 49.2 (expected 49.9; last 49.6) and flash Services PMI hit 52.6 (expected 53.3; last 53.6). December ZEW Economic Sentiment hit 33.7 (expected 26.3; last 25.0). October trade surplus reached EUR18.4 bln (last surplus of EUR18.4 bln).
  • Germany's flash December Manufacturing PMI hit 47.7 (expected 48.6; last 48.2) and flash Services PMI hit 52.6 (expected 53.0; last 53.1). December ZEW Economic Sentiment rose to 45.8 from 38.5 (expected 38.4) and ZEW Current Conditions fell to -81.0 from -78.7 (expected -80.0).
  • U.K.'s flash December Manufacturing PMI hit 51.2 (expected 50.3; last 50.2) and flash Services PMI hit 52.1 (expected 51.6; last 51.3). October Average Earnings Index + Bonus rose 4.7% yr/yr (expected 4.4%; last 4.9%). October three-month employment decreased by 16,000 (last -22,000) and October Unemployment Rate rose to 5.1% from 5.0%, as expected. November Claimant Count increased by 20,100 (expected 21,600; last -3,900).
  • France's flash December Manufacturing PMI hit 50.6 (expected 48.1; last 47.8) and flash Services PMI hit 50.2 (expected 51.1; last 51.4).
  • Italy's November CPI was down 0.2% m/m, as expected (last -0.2%), rising 1.1% yr/yr (expected 1.2%; last 1.2%). October trade surplus reached EUR4.156 bln (expected surplus of EUR3.210 bln; last surplus of EUR2.968 bln).
• Today's Data:
  • November nonfarm payrolls increased by 64,000 (Briefing.com consensus: 30,000). The 3-month average for total nonfarm payrolls increased to 22,000 from -8,000. October nonfarm payrolls -105,000. November private sector payrolls increased by 69,000 (Briefing.com consensus: 34,000). October private sector payrolls 52,000. November unemployment rate was 4.6% (Briefing.com consensus: 4.4%) versus 4.4% in September. Persons unemployed for 27 weeks or more accounted for 24.3% of the unemployed versus 23.6% in September. The U6 unemployment rate, which accounts for unemployed and underemployed workers, increased to 8.7% from 8.0% in September. November average hourly earnings were up 0.1% (Briefing.com consensus: 0.3%) versus a 0.4% increase in October. Over the last 12 months, average hourly earnings have risen 3.5% versus 3.8% for the 12 months ending in October.
    • The key takeaway from the employment report will be the bump in the official unemployment rate and the softening in the U-6 unemployment rate. Both have helped substantiate the Fed's concerns about downside risk to employment that served as the basis for the December cut.
  • The October retail sales report was better than the headline suggests. Total retail sales were flat month-over-month (Briefing.com consensus: 0.3%) following a downwardly revised 0.1% increase (from 0.2%) in September. Excluding autos, retail sales rose 0.4% month-over-month following a downwardly revised 0.1% increase (from 0.3%) in September.
    • The key takeaway from the report is that there were solid increases in spending across many discretionary spending categories. The notable exceptions were building material and garden equipment and supplies dealers sales (-0.9%) and food services and drinking places (-0.4%). Department store sales (+4.9%), on the other hand, had a big month along with sporting goods (+1.9%) and nonstore retailers (+1.8%).
  • The S&P Global U.S. Manufacturing PMI hit 51.8 in the flash reading for December, down from 51.8 in November.
  • The S&P Global U.S. Services PMI hit 52.9 in the flash reading for December, down from 52.9 in November.
  • Business Inventories rose 0.2% in September (Briefing.com consensus 0.1%) after an unchanged reading in August.
• Commodities:
  • WTI crude: -2.3% to $55.29/bbl
  • Gold: -0.1% to $4331.90/ozt
  • Copper: -0.9% to $5.36/lb
• Currencies:
  • EUR/USD: +0.1% to 1.1760
  • GBP/USD: +0.4% to 1.3431
  • USD/CNH: -0.1% to 7.0321
  • USD/JPY: -0.4% to 154.64
• The Day Ahead:
  • 7:00 ET: Weekly MBA Mortgage Index (prior 4.8%)
  • 10:30 ET: Weekly crude oil inventories (prior -1.81 mln)

Defending Post-Data Gains

• Longer-dated Treasuries have clawed their way back to highs that were seen in immediate reaction to the Employment Situation report for November (64,000; Briefing.com consensus 30,000) and October Retail Sales (0.0%; Briefing.com consensus 0.3%). Shorter tenors have also seen some recent buying that has pushed them toward their best levels of the day, but they remain below session highs with the 2-yr yield hovering nearly three basis points above its morning low. The 30-yr yield, meanwhile, is just a basis point above today's low. Equities have widened their losses with the S&P 500 now down 0.7% with the energy sector (-3.0%) leading the weakness amid growing hopes for a Russia-Ukraine peace deal that would presumably lead to Russia's eventual return to the global oil market.
• Yield Check:
  • 2-yr: -3 bps to 3.48%
  • 3-yr: -4 bps to 3.52%
  • 5-yr: -4 bps to 3.70%
  • 10-yr: -3 bps to 4.16%
  • 30-yr: -2 bps to 4.83%

Shorter Tenors Ahead

• Longer-dated U.S. Treasuries continue trading near their starting levels after seeing some early volatility while shorter tenors have added to their early gains. Treasuries followed their modestly higher start with a brief pullback in reaction to the November Employment Situation report, which showed a much bigger-than-expected increase in Nonfarm Payrolls (64,000; Briefing.com consensus 30,000), which overshadowed a 105,000 drop in October payrolls. The market also received the Retail Sales report for October (0.0%; Briefing.com consensus 0.3%), which missed estimates, but Retail Sales ex-auto (0.4%; Briefing.com consensus 0.3%) beat estimates. The post-data pullback was followed by an immediate bounce that has returned the long bond to its starting level while shorter tenors are holding onto a bigger portion of their early gains. Equities are off to a lower start with the S&P 500 falling 0.4%.
• Yield Check:
  • 2-yr: -3 bps to 3.48%
  • 3-yr: -3 bps to 3.53%
  • 5-yr: -3 bps to 3.70%
  • 10-yr: -2 bps to 4.16%
  • 30-yr: -1 bp to 4.84%

Data Recon

• November nonfarm payrolls increased by 64,000 (Briefing.com consensus: 30,000). The 3-month average for total nonfarm payrolls increased to 22,000 from -8,000. October nonfarm payrolls -105,000. November private sector payrolls increased by 69,000 (Briefing.com consensus: 34,000). October private sector payrolls 52,000. November unemployment rate was 4.6% (Briefing.com consensus: 4.4%) versus 4.4% in September. Persons unemployed for 27 weeks or more accounted for 24.3% of the unemployed versus 23.6% in September. The U6 unemployment rate, which accounts for unemployed and underemployed workers, increased to 8.7% from 8.0% in September. November average hourly earnings were up 0.1% (Briefing.com consensus: 0.3%) versus a 0.4% increase in October. Over the last 12 months, average hourly earnings have risen 3.5% versus 3.8% for the 12 months ending in October.
  • The key takeaway from the employment report will be the bump in the official unemployment rate and the softening in the U-6 unemployment rate. Both have helped substantiate the Fed's concerns about downside risk to employment that served as the basis for the December cut.
• The October retail sales report was better than the headline suggests. Total retail sales were flat month-over-month (Briefing.com consensus: 0.3%) following a downwardly revised 0.1% increase (from 0.2%) in September. Excluding autos, retail sales rose 0.4% month-over-month following a downwardly revised 0.1% increase (from 0.3%) in September.
  • The key takeaway from the report is that there were solid increases in spending across many discretionary spending categories. The notable exceptions were building material and garden equipment and supplies dealers sales (-0.9%) and food services and drinking places (-0.4%). Department store sales (+4.9%), on the other hand, had a big month along with sporting goods (+1.9%) and nonstore retailers (+1.8%).
• Yield Check:
  • 2-yr: -1 bp to 3.50%
  • 3-yr: -2 bps to 3.54%
  • 5-yr: -1 bp to 3.72%
  • 10-yr: UNCH at 4.18%
  • 30-yr: +1 bp to 4.86%

Steady Into Delayed Data Storm

• U.S. Treasuries are on track for a slightly higher start after a quiet night in the futures market, though some early volatility is expected to surround the 8:30 ET release of a few economic reports, headlined by November Nonfarm Payrolls (Briefing.com consensus 30,000). Treasury futures spent the night in a sideways range, rising to highs toward the end of the Asian session, followed by a return to little changed. Like U.S. Treasuries, other sovereign debt has seen limited movement while equity markets have faced some pressure with technology names in Asia and military contractors in Europe among the weakest performers. Economic data released overnight showed continued expansion in Australia's Manufacturing PMI (52.2) while Japan's reading (49.7) remained in contraction. European flash December PMI readings remained generally weak with the eurozone's Manufacturing PMI (to 49.2 from 49.6) dipping further into contraction while Services PMI (52.6 from 53.6) pointed to ongoing expansion, but at a slower pace than last month. Crude oil is falling past $56/bbl while the U.S. Dollar Index is down 0.2% at 98.12.
• Yield Check:
  • 2-yr: -1 bp to 3.50%
  • 3-yr: -1 bp to 3.55%
  • 5-yr: -1 bp to 3.72%
  • 10-yr: -1 bp to 4.17%
  • 30-yr: -1 bp to 4.84%

• News:
  • National Australia Bank expects the Reserve Bank of Australia to announce 25-basis point rate hikes in February and May.
  • Japan's flash December Manufacturing PMI hit 49.7 (expected 49.0; last 48.7) and flash Services PMI hit 52.5 (last 53.2).
  • Hong Kong's November Unemployment Rate remained at 3.8%.
  • India's flash December Manufacturing PMI hit 55.7 (last 56.6) and flash Services PMI hit 59.1 (last 59.8).
  • Australia's flash December Manufacturing PMI hit 52.2 (last 51.6) and flash Services PMI hit 51.0 (last 52.8). December Westpac Consumer Sentiment was down 9.0% (last 12.8%).
  • New Zealand's November FPI was down 0.4% m/m (last -0.3%).
  • Eurozone's flash December Manufacturing PMI hit 49.2 (expected 49.9; last 49.6) and flash Services PMI hit 52.6 (expected 53.3; last 53.6). December ZEW Economic Sentiment hit 33.7 (expected 26.3; last 25.0). October trade surplus reached EUR18.4 bln (last surplus of EUR18.4 bln).
  • Germany's flash December Manufacturing PMI hit 47.7 (expected 48.6; last 48.2) and flash Services PMI hit 52.6 (expected 53.0; last 53.1). December ZEW Economic Sentiment rose to 45.8 from 38.5 (expected 38.4) and ZEW Current Conditions fell to -81.0 from -78.7 (expected -80.0).
  • U.K.'s flash December Manufacturing PMI hit 51.2 (expected 50.3; last 50.2) and flash Services PMI hit 52.1 (expected 51.6; last 51.3). October Average Earnings Index + Bonus rose 4.7% yr/yr (expected 4.4%; last 4.9%). October three-month employment decreased by 16,000 (last -22,000) and October Unemployment Rate rose to 5.1% from 5.0%, as expected. November Claimant Count increased by 20,100 (expected 21,600; last -3,900).
  • France's flash December Manufacturing PMI hit 50.6 (expected 48.1; last 47.8) and flash Services PMI hit 50.2 (expected 51.1; last 51.4).
  • Italy's November CPI was down 0.2% m/m, as expected (last -0.2%), rising 1.1% yr/yr (expected 1.2%; last 1.2%). October trade surplus reached EUR4.156 bln (expected surplus of EUR3.210 bln; last surplus of EUR2.968 bln).
• Commodities:
  • WTI Crude: -1.6% to $55.90/bbl
  • Gold: -0.3% to $4322.40/ozt
  • Copper: -0.8% to $5.368/lb
• Currencies:
  • EUR/USD: +0.2% to 1.1773
  • GBP/USD: +0.5% to 1.3434
  • USD/CNH: -0.1% to 7.0351
  • USD/JPY: -0.4% to 154.61
• Data out Today:
  • 8:30 ET: November Nonfarm Payrolls (Briefing.com consensus 30,000; prior NA), Nonfarm Private Payrolls (Briefing.com consensus 34,000; prior NA), Unemployment Rate (Briefing.com consensus 4.4%; prior NA), Average Hourly Earnings (Briefing.com consensus 0.3%; prior NA), Average Workweek (Briefing.com consensus 34.3; prior NA), September Housing Starts (Briefing.com consensus 1.320 mln; prior 1.307 mln) and Building Permits (Briefing.com consensus 1.348 mln; prior 1.312 mln), October Retail Sales (Briefing.com consensus 0.3%; prior 0.2%) and Retail Sales ex-auto (Briefing.com consensus 0.3%; prior 0.3%)
  • 9:15 ET: November Industrial Production (Briefing.com consensus 0.1%; prior NA) and Capacity Utilization (Briefing.com consensus 77.4%; prior NA)
  • 9:45 ET: Flash December S&P Global U.S. Manufacturing PMI (prior 52.2) and flash December S&P Global U.S. Services PMI (prior 54.1)
  • 10:00 ET: September Business Inventories (Briefing.com consensus 0.1%; prior NA)