Bond Market Update

Treasuries Slide as September Jobs Report Looms

• U.S. Treasuries retreated on Thursday, adding to their losses from Wednesday ahead of tomorrow's release of the Employment Situation report for September (135,000; Briefing.com consensus 142,000), which has the potential to influence the market's rate cut expectations. The trading day started with modest losses that were extended in early trade after a night that featured the release of mostly better-than-expected final September Services PMI readings from major economies. Treasuries widened their initial losses after the ISM Non-Manufacturing PMI (54.9%; Briefing.com consensus 51.6%) for the U.S. beat expectations, fitting with the theme seen throughout the night. The post-data slip was met with a quick rebound, which coincided with a poor showing from equities, but Treasuries found renewed pressure in the early afternoon, reaching fresh lows ahead of the close. The day ended with the fed funds futures market pricing in a 35.3% implied likelihood of a 50-bps rate cut, down from 49.3% a week ago, but the expectations are likely to be recalibrated after tomorrow's release of the September jobs report. Crude oil soared past its 50-day moving average (73.05), reaching a one-month high after President Biden acknowledged that the U.S. could support Israel in attacking Iranian oil facilities. The U.S. Dollar Index climbed for the fourth consecutive day, rising 0.3% to 101.97, a level not seen since late August.
• Yield Check:
  • 2-yr: +7 bps to 3.71%
  • 3-yr: +8 bps to 3.63%
  • 5-yr: +8 bps to 3.64%
  • 10-yr: +7 bps to 3.85%
  • 30-yr: +5 bps to 4.18%

• News:
  • Automakers Aston Martin, Stellantis, and Mercedes-Benz have been pressured by analyst downgrades.
  • Japan's September Services PMI hit 53.1 (expected 53.9; last 53.7).
  • Hong Kong's August Retail Sales were down 10.1% yr/yr (last -11.8%).
  • Australia's September Services PMI hit 50.5 (expected 50.6; last 52.5). August trade surplus reached AUD5.644 bln (expected surplus of AUD5.510 bln; last surplus of AUD5.636 bln) as imports dipped 0.2% m/m (last -0.6%) and exports also decreased by 0.2% m/m (last 0.3%).
  • Eurozone's September Services PMI hit 51.4 (expected 50.5; last 52.9). August PPI was up 0.6% m/m (expected 0.4%; last 0.7%) but down 2.3% yr/yr (expected -2.4%; last -2.2%).
  • Germany's September Services PMI hit 50.6, as expected (last 51.2).
  • U.K.'s September Services PMI hit 52.4 (expected 52.8; last 53.7).
  • France's September Services PMI hit 49.6 (expected 48.3; last 55.0).
  • Italy's September Services PMI hit 50.5 (expected 51.2; last 51.4).
  • Spain's September Services PMI hit 57.0 (expected 54.0; last 54.6).
  • Swiss September CPI was down 0.3% m/m (expected -0.1%; last 0.0%) but up 0.8% yr/yr (expected 1.1%; last 1.1%).
• Today's Data:
  • The ISM Services PMI increased to 54.9% in September (Briefing.com consensus 51.6%) from 51.5% in August. That is the highest reading since February 2023. The dividing line between expansion and contraction is 50.0%, so the September reading reflects services sector activity accelerating from August.
    • The key takeaway from the report is that overall activity in the largest sector of the U.S. economy accelerated in September, albeit without an expansion in employment activity, as new orders increased along with prices. net-net, this is a report that meshes more with a soft landing outcome than a hard landing one.
  • Factory orders decreased 0.2% month-over-month in August (Briefing.com consensus 0.1%) following a downwardly revised 4.9% increase (from 5.0%) in July. Excluding transportation, factory orders decreased 0.1% on the heels of a 0.3% increase in July. Shipments of manufactured goods fell 0.5% in August following a 0.8% increase in July.
    • The key takeaway from the report is that business spending rebounded in August.
  • The S&P Global U.S. Services PMI hit 55.2 in the final reading for September, down from 55.2 in the preliminary reading and 55.4 in the final reading for August.
  • Weekly natural gas inventories increased by 55 bcf after increasing by 47 bcf a week ago.
• Commodities:
  • WTI crude: +5.0% to $73.73/bbl
  • Gold: +0.3% to $2680.10/ozt
  • Copper: -2.2% to $4.55/lb
• Currencies:
  • EUR/USD: -0.2% to 1.1026
  • GBP/USD: -1.2% to 1.3116
  • USD/CNH: +0.2% to 7.0493
  • USD/JPY: +0.4% to 146.88
• The Day Ahead:
  • 8:30 ET: September Nonfarm Payrolls (Briefing.com consensus 135,000; prior 142,000), Nonfarm Private Payrolls (Briefing.com consensus 125,000; prior 118,000), Average Hourly Earnings (Briefing.com consensus 0.3%; prior 0.4%), Unemployment Rate (Briefing.com consensus 4.2%; prior 4.2%), and Average Workweek (Briefing.com consensus 34.3; prior 34.3)