Bond Market Update

Pressured by Powell

• U.S. Treasuries are on track for a lower start after facing some pressure in the futures market after yesterday's cash close. The selling resulted from Fed Chairman Powell saying that the economy is not sending any signals that the Fed needs to be in a hurry to lower rates. Accordingly, the implied likelihood of a 25-bps rate cut in December decreased to 62.4% from 72.2% that was seen yesterday morning. Treasury futures dipped again in evening action, but they recovered those losses once the focus shifted to action in Europe. The overnight trading range was narrow, but that could change once the market receives today's batch of data, which will be headlined by October Retail Sales (Briefing.com consensus 0.3%; prior 0.4%) at 8:30 ET. Overseas, the People's Bank of China injected nearly CNY1 trln of liquidity through open market operations to offset maturing medium term lending facility loans and tax payments. Meanwhile in Europe, the EU Commission maintained its 2024 growth forecast for the eurozone at 0.8% while growth in 2025 is expected to reach 1.3%. Crude oil is little changed while the U.S. Dollar Index is down 0.1% at 106.56, reversing yesterday's uptick.
• Yield Check:
  • 2-yr: +2 bps to 4.31%
  • 3-yr: +2 bps to 4.28%
  • 5-yr: +2 bps to 4.31%
  • 10-yr: +2 bps to 4.44%
  • 30-yr: +2 bps to 4.60%

• News:
  • Japan's Finance Minister Kato said that one-sided sharp moves are being seen in the foreign exchange market and they are being watched with a high sense of urgency.
  • Samsung agreed to a 5.1% pay increase with its labor union in South Korea.
  • Germany's Chancellor Scholz is scheduled to meet with China's President Xi on Tuesday.
  • China's October Industrial Production was up 5.3% yr/yr (expected 5.5%; last 5.4%), Retail Sales grew 4.8% yr/yr (expected 3.8%; last 3.2%), Fixed Asset Investment increased 3.4% yr/yr (expected 3.5%; last 3.4%), and Unemployment Rate fell to 5.0% from 5.1% (expected 5.1%). October FDI was down 29.8% YTD (last -30.4%).
  • Japan's flash Q3 GDP was up 0.2%, as expected (last 0.5%), rising 0.9% yr/yr (expected 0.7%; last 2.2%). Q3 GDP Price Index was up 2.5% yr/yr (expected 2.8%; last 3.1%), Q3 GDP Private Consumption was up 0.9% qtr/qtr (expected 0.2%; last 0.7%), Q3 GDP External Demand was down 0.4% qtr/qtr (expected 0.1%; last -0.1%), and Q3 GDP Capital Expenditure was down 0.2% qtr/qtr, as expected (last 0.9%). September Industrial Production was up 1.6% m/m (expected 1.4%; last 1.4%). September Tertiary Industry Activity Index rose to 1.9 from -2.9 (expected 0.2).
  • South Korea's October trade surplus reached $3.15 bln (last surplus of $3.17 bln) as imports rose 1.7% yr/yr (last 1.7%) and exports grew 4.6% yr/yr (last 4.6%).
  • Hong Kong's Q3 GDP was down 1.1% qtr/qtr, as expected (last 0.4%) but up 1.8% yr/yr, as expected (last 3.3%).
  • New Zealand's October Business PMI hit 45.8 (last 46.9).
  • Germany's October WPI was up 0.4% m/m (expected 0.1%; last -0.3%) but down 0.8% yr/yr (last -1.6%).
  • U.K.'s Q3 GDP expanded 0.1% qtr/qtr (expected 0.2%; last 0.5%), growing 1.0% yr/yr (expected 0.1%; last 0.7%). Q3 Business Investment was up 1.2% qtr/qtr (expected 0.6%; last 1.4%), rising 4.5% yr/yr (last 0.2%). September Construction Output was up 0.1% m/m (expected 0.3%; last 0.6%) but down 0.4% yr/yr (expected -0.5%; last 0.5%). September Industrial Production was down 0.5% m/m (expected 0.1%; last 0.5%), falling 1.8% yr/yr (expected -1.2%; last -1.7%). September Manufacturing Production was down 1.0% m/m (expected 0.0%; last 1.3%), falling 0.7% yr/yr (expected -1.2%; last -1.7%). September trade deficit reached GBP16.3 bln (expected GBP15.7 bln; last GBP15.2 bln).
  • France's October CPI was up 0.3% m/m (expected 0.2%; last -1.3%), rising 1.2% yr/yr, as expected (last 1.1%).
  • Italy's October CPI was unchanged m/m, as expected (last -0.2%), rising 0.9% yr/yr, as expected (last 0.7%). September trade surplus reached EUR2.58 bln (expected EUR2.55 bln; last EUR1.34 bln).
  • Swiss October PPI was down 0.3% m/m (expected 0.1%; last -0.1%), falling 1.8% yr/yr (last -1.3%).
• Commodities:
  • WTI Crude: -0.1% to 68.66/bbl
  • Gold: UNCH at $2572.70/ozt
  • Copper: +1.9% to $4.16/lb
• Currencies:
  • EUR/USD: +0.4% to 1.0575
  • GBP/USD: +0.1% to 1.2676
  • USD/CNH: -0.2% to 7.2360
  • USD/JPY: -0.5% to 155.43
• Data out Today:
  • 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%)