Bond Market Update

Higher Start Sustained

• U.S. Treasuries remain near their starting levels after defending their opening gains. The market spent the first few minutes of action in a pullback from today's opening levels, but support was found quickly, vaulting Treasuries to fresh highs about 90 minutes after the cash start. Treasuries marked their best levels as equities slumped out of the gate, though stocks are trying to recover with the Dow already back at its flat line while the Nasdaq (-1.2%) lags, extending this week's loss to 2.7%. The S&P 500 (-0.6%) holds a slimmer loss and is currently down 1.2% for the week.
• Yield Check:
  • 2-yr: -3 bps to 4.13%
  • 3-yr: -3 bps to 4.17%
  • 5-yr: -4 bps to 4.24%
  • 10-yr: -5 bps to 4.52%
  • 30-yr: -5 bps to 5.05%

Data Recon

• The preliminary reading for the University of Michigan Consumer Sentiment Index for July increased to 54.4 (Briefing.com consensus: 50.7) from the final reading of 49.5 for June. In the same period a year ago, the index stood at 61.7.
  • The key takeaway from the report was the correlation between lower gas prices and higher sentiment, the latter of which was pervasive across groups by age, wealth, income, and political party. Gas prices, though, have started to increase again with the military action between the U.S. and Iran, so it remains to be seen if this improved sentiment can be sustained.
• Yield Check:
  • 2-yr: -3 bps to 4.13%
  • 3-yr: -3 bps to 4.17%
  • 5-yr: -4 bps to 4.24%
  • 10-yr: -5 bps to 4.52%
  • 30-yr: -5 bps to 5.05%

Data Recon

• Industrial production increased just 0.1% month-over-month in June (Briefing.com consensus: 0.3%) following an unrevised 0.1% increase in May. The capacity utilization rate was 76.1% (Briefing.com consensus: 76.2%), unchanged from a downwardly revised 76.1% (from 76.2%) in May. Total industrial production was up 1.1% year-over-year. The capacity utilization rate is 3.3 percentage points below its long-run average.
  • The key takeaway from the report is that there was no increase in manufacturing output, something that hasn't happened since January.
• Yield Check:
  • 2-yr: -3 bps to 4.13%
  • 3-yr: -3 bps to 4.17%
  • 5-yr: -4 bps to 4.24%
  • 10-yr: -4 bps to 4.53%
  • 30-yr: -4 bps to 5.06%

Data Recon

• Housing starts increased 19.0% month-over-month in June to a seasonally adjusted annual rate of 1.427 million units (Briefing.com consensus: 1.328 million), paced by a 76% increase in multi-unit starts. Building permits--a leading indicator--declined 3.0% month-over-month to a seasonally adjusted annual rate of 1.367 million (Briefing.com consensus: 1.403 million), with single-unit permits down 2.4%.
  • The key takeaway from the report is that there wasn't any growth in single-unit starts or permits, which isn't a positive read for a housing market pinched by affordability issues.
• Separately, import prices were up 0.3% month-over-month in June and up 7.1% year-over-year. Excluding fuel, they were up 0.4% month-over-month and up 4.2% year-over-year. Export prices fell 0.6% month-over-month but were up 10.2% year-over-year. Excluding agricultural products, export prices were down 0.7% month-over-month and were up 10.6% year-over-year.
  • The key takeaway is that the outsized year-over-year increases for import and export prices goes to show that there is ample inflation still to contend with here and abroad.
• Yield Check:
  • 2-yr: -2 bps to 4.14%
  • 3-yr: -1 bp to 4.19%
  • 5-yr: -2 bps to 4.26%
  • 10-yr: -3 bps to 4.54%
  • 30-yr: -4 bps to 5.06%

 Higher Start Ahead

• U.S. Treasuries are on track for a higher start that should put yields back at their lowest levels of the week. Treasury futures began rising last evening, continuing their advance through the night while other sovereign debt edged higher while equity markets faced some ongoing volatility with Japan's Nikkei (-4.0%) diving to a five-week low. The overnight news flow included South Korean regulators banning the issuance of leveraged single-stock investment products and the start of a World Artificial Intelligence Conference in China, with the latter fueling concerns that China will export AI deflation to the rest of the world. The overnight data flow was on the light side, but things will pick up during the U.S. session with the market set to receive June Housing Starts (Briefing.com consensus 1.328 mln; prior 1.177 mln) and Building Permits (Briefing.com consensus 1.403 mln; prior 1.413 mln) at 8:30 ET, followed by June Industrial Production at 9:15 ET, and the preliminary July University of Michigan Consumer Sentiment (Briefing.com consensus 50.7; prior 49.5) at 10:00 ET. Crude oil is nearing $81/bbl while the U.S. Dollar Index is up 0.1% at 100.84.
• Yield Check:
  • 2-yr: -3 bps to 4.13%
  • 3-yr: -3 bps to 4.17%
  • 5-yr: -4 bps to 4.24%
  • 10-yr: -5 bps to 4.52%
  • 30-yr: -5 bps to 5.05%

• News:
  • President Trump said last evening that China interfered with the 2020 election.
  • Korea Financial Services Commission banned the issuance of single-stock leveraged products.
  • Andy Burnham takes leadership of the British Labour party today and is set to become prime minister on Monday. The IMF has reportedly warned Mr. Burnham that there is little room for increasing public spending.
  • Germany's Commerzbank is reportedly preparing its demands ahead of likely merger talks with UniCredit.
  • Hong Kong's June Unemployment Rate remained at 3.7%.
  • New Zealand's June FPI was up 0.6% m/m (last 1.0%).
  • Singapore's June trade surplus reached SGD13.817 bln (last surplus of SGD5.556 bln) as non-oil exports fell 8.9% (last 7.7%), rising 20.7% yr/yr (expected 30.2%; last 38.4%).
  • Eurozone's June CPI was down 0.1% m/m, as expected (last 0.1%) but up 2.8% yr/yr, as expected (last 3.2%). June Core CPI was up 0.2% m/m, as expected (last 0.2%), rising 2.4% yr/yr, as expected (last 2.6%). May Current Account surplus reached EUR25.1 bln (expected surplus of EUR18.1 bln; last surplus of EUR15.7 bln).
• Commodities:
  • WTI Crude: +2.2% to $80.68/bbl
  • Gold: +0.1% to $3995.70/ozt
  • Copper: -2.0% to $6.213/lb
• Currencies:
  • EUR/USD: -0.1% to 1.1432
  • GBP/USD: -0.2% to 1.3440
  • USD/CNH: +0.1% to 6.7791
  • USD/JPY: UNCH at 162.34
• Data out Today:
  • 8:30 ET: June Housing Starts (Briefing.com consensus 1.328 mln; prior 1.177 mln), Building Permits (Briefing.com consensus 1.403 mln; prior 1.413 mln), June Import Prices (prior 1.9%), Import Prices ex-oil (prior 0.8%), Export Prices (prior 1.3%), and Export Prices ex-agriculture (prior 1.2%)
  • 9:15 ET: June Industrial Production (Briefing.com consensus 0.3%; prior 0.1%) and Capacity Utilization (Briefing.com consensus 76.2%; prior 76.2%)
  • 10:00 ET: Preliminary July University of Michigan Consumer Sentiment (Briefing.com consensus 50.7; prior 49.5)