Bond Market Update

Bumpy Action After In-Line PPI

• U.S. Treasuries had a mixed finish to a Thursday session that featured the release of in-line October PPI (0.2%) and Core PPI (0.3%), which was coupled with an upward revision of the headline PPI reading for September (to 0.1% from 0.0%). The trading day started with relative strength in the long bond, but the entire complex faced a wave of selling in immediate reaction to the PPI report. That selling briefly lifted the 10-yr yield to a fresh high for the week (4.483%), but the entire complex bounced swiftly, returning yields to their opening levels 30 minutes after the report crossed the wires. The long bond remained at the forefront of the bounce, but the market ran into resistance in mid-morning action, followed by backtracking that was led by the short end while 5s and longer tenors held onto a portion of their gains. Crude oil edged higher, remaining above its November low, while the U.S. Dollar Index rose 0.3% to 106.81, its best level since early November 2023.
• Yield Check:
  • 2-yr: +1 bp to 4.29%
  • 3-yr: UNCH at 4.26%
  • 5-yr: -1 bp to 4.29%
  • 10-yr: -3 bps to 4.42%
  • 30-yr: -5 bps to 4.58%

• News:
  • Fed Chairman Powell is taking part in a panel discussion at the Dallas Regional Chamber of Commerce at 15:00 ET.
  • British Chancellor Reeves announced a plan to consolidate local government contribution funds into pension mega funds.
  • French prosecutors are setting their sights on Marine Le Pen over alleged embezzlement and misappropriation of EU funds.
  • China's rumored tax cuts for homebuyers were officially announced today and will become effective at the start of December.
  • Japan is planning an extraordinary Diet session for the end of November to pass a budget.
  • India's October WPI Inflation was up 2.36% yr/yr (expected 2.20%; last 1.84%). October trade deficit reached $27.1 bln (last deficit of $20.8 bln).
  • South Korea's September M2 Money Supply increased 5.6% yr/yr (last 5.3%).
  • Australia's October Employment increased by 15,900 (expected 25,200; last 61,300) and full employment increased by 9,700 (last 48,800). October Unemployment Rate remained at 4.1%, as expected, and Participation Rate ticked down to 67.1% from 67.2% (expected 67.2%). November MI Inflation Expectations decelerated to 3.8% from 4.0%.
  • New Zealand's October FPI was down 0.9% m/m (last 0.5%).
  • Eurozone's flash Q3 GDP expanded 0.4% qtr/qtr, as expected (last 0.4%), growing 0.9% yr/yr, as expected (last 0.9%). Q3 Employment increased by 0.2% qtr/qtr, as expected (last 0.2%), rising 1.0% yr/yr (last 0.8%). September Industrial Production was down 2.0% m/m (expected -1.3%; last 1.5%), falling 2.8% yr/yr (expected -2.0%; last -0.1%).
  • Spain's October CPI was up 0.6% m/m, as expected (last -0.6%), rising 1.8% yr/yr, as expected (last 1.5%). October Core CPI was up 2.5% yr/yr (expected 2.5%; last 2.4%).
• Today's Data:
  • The Producer Price Index for final demand increased 0.2% month-over-month in October (Briefing.com consensus 0.2%) following an upwardly revised 0.1% increase (from 0.0%) in September. Excluding food and energy, the index for final demand jumped 0.3% month-over-month (Briefing.com consensus 0.3%) after increasing 0.2% in September. With these monthly increases, the index for final demand was up 2.4% year-over-year, versus 1.9% in September, and the index for final demand, less food and energy, was up 3.1% year-over-year, versus 3.0% in September.
    • The key takeaway from the report is that there was inflation in this report -- not disinflation -- at the wholesale level. That will stir concerns about PCE inflation sticking at higher levels and the Fed not cutting rates as much as previously envisioned.
  • Initial jobless claims decreased by 4,000 for the week ending November 9 to 217,000 (Briefing.com consensus 220,000). Continuing jobless claims for the week ending November 2 decreased by 11,000 to 1.873 million.
    • The key takeaway from the report is rooted in the low level of initial jobless claims -- a leading indicator -- which suggests employers are feeling reasonably good about the economic outlook, as they appear reluctant to layoff employees.
  • Weekly natural gas inventories increased by 42 bcf after increasing by 69 bcf a week ago.
  • Weekly crude oil inventories increased by 2.09 mln barrels after increasing by 2.15 mln barrels a week ago.
• Commodities:
  • WTI crude: +0.4% to $68.68/bbl
  • Gold: -0.6% to $2573.00/ozt
  • Copper: +0.3% to $4.09/lb
• Currencies:
  • EUR/USD: -0.4% to 1.0523
  • GBP/USD: -0.4% to 1.2657
  • USD/CNH: +0.2% to 7.2540
  • USD/JPY: +0.6% to 156.35
• The Day Ahead:
  • 8:30 ET: October Retail Sales (Briefing.com consensus 0.3%; prior 0.4%), Retail Sales ex-auto (Briefing.com consensus 0.2%; prior 0.5%), November Empire State Manufacturing (Briefing.com consensus 3.3; prior -11.9), October Import Prices (prior -0.4%), Import Prices ex-oil (prior 0.1%), Export Prices (prior -0.7%), and Export Prices ex-agriculture (prior -0.9%)
  • 9:15 ET: October Industrial Production (Briefing.com consensus -0.3%; prior -0.3%) and Capacity Utilization (Briefing.com consensus 77.3%; prior 77.5%)
  • 10:00 ET: September Business Inventories (Briefing.com consensus 0.2%; prior 0.3%)