Bond Market Update

Short End Ahead as Rate Cut Looms

• U.S. Treasuries are on track for a modestly higher start in most tenors after reclaiming their slim losses during the European session, which has featured news of a possible snap election in Germany and some central bank action. The Bank of England lowered its bank rate by 25 bps to 4.75% while Sweden's Riksbank lowered its policy rate by 50 bps to 2.75% and Norway's Norges Bank kept its rate at 4.50%. The U.S. session will also feature the outcome of the latest meeting at the Federal Reserve, which is all but certain to result in a 25-bps rate cut that will reduce the fed funds rate range to 4.50-4.75%. Before then, the market will receive the preliminary Productivity (Briefing.com consensus 2.3%; prior 2.5%) and Unit Labor Cost (Briefing.com consensus 0.5%; prior 0.4%) figures for Q3. Crude oil has returned to its 50-day moving average (70.91) while the U.S. Dollar Index is down 0.3% at 104.76.
• Yield Check:
  • 2-yr: -4 bps to 4.23%
  • 3-yr: -3 bps to 4.20%
  • 5-yr: -3 bps to 4.24%
  • 10-yr: -2 bps to 4.41%
  • 30-yr: -1 bp to 4.59%

• News:
  • China Airlines is reportedly leaning toward splitting its order for 20 jets between Boeing and Airbus as a gesture of goodwill after Donald Trump's election.
  • South Korean shipbuilders had a strong showing after President-elect Trump told South Korea's President Yoon that the American shipbuilding industry could use help from South Korean counterparts.
  • Germany's Chancellor Scholz dismissed Finance Minister Lindner and called for a confidence vote on January 15 that will likely lead to a snap election in March.
  • British Chancellor Reeves said that she will not request additional tax increases before the end of current parliament.
  • China's October trade surplus reached $95.72 bln (expected surplus of $73.50 bln; last surplus of $81.71 bln) as imports fell 2.3% yr/yr (expected -1.5%; last 0.3%) and exports rose 12.7% yr/yr (expected 5.0%; last 2.4%). October FX Reserves fell to $3.261 trln from $3.316 trln (expected $3.290 trln).
  • Japan's September Overall Wage Income was up 2.8% yr/yr (expected 3.0%; last 2.8%).
  • South Korea's September Current Account surplus reached $11.12 bln (last surplus of $6.60 bln). 
  • Australia's September Building Approvals were up 4.4% m/m, as expected (last -3.9%). September trade surplus reached AUD4.61 bln (expected surplus of AUD5.24 bln; last surplus of AUD5.28 bln) as imports fell 3.1% m/m (last -0.2%) and exports decreased 4.3% m/m (last -0.6%).
  • Eurozone's October Construction PMI hit 43.0 (last 42.1). September Retail Sales rose 0.5% m/m (expected 0.4%; last 1.1%), increasing 2.9% yr/yr (expected 1.3%; last 2.4%).
  • Germany's September trade surplus reached EUR17.0 bln (expected surplus of EUR20.8 bln; last surplus of EUR21.4 bln) as imports grew 2.1% m/m (expected 0.5%; last -2.6%) and exports fell 1.7% m/m (expected -1.4%; last 1.2%). September Industrial Production was down 2.5% m/m (expected -1.1%; last 2.6%), falling 4.6% yr/yr (last -2.8%). October Construction PMI hit 40.2 (last 41.7).
  • U.K.'s October Halifax House Price Index was up 0.2% m/m, as expected (last 0.3%), rising 3.9% yr/yr (expected 4.2%; last 4.6%).
  • France's Q3 nonfarm payrolls were down 0.1% qtr/qtr (expected 0.0%; last 0.0%).
  • Italy's October Construction PMI hit 48.2 (last 47.8).
  • Spain's September Industrial Production was up 0.6% yr/yr (expected 0.2%; last -0.1%).
• Commodities:
  • WTI Crude: -0.8% to $71.13/bbl
  • Gold: +0.2% to $2681.50/ozt
  • Copper: +2.6% to $4.356/lb
• Currencies:
  • EUR/USD: +0.5% to 1.0784
  • GBP/USD: +0.7% to 1.2963
  • USD/CNH: -0.6% to 7.1565
  • USD/JPY: -0.6% to 153.64
• Data out Today:
  • 8:30 ET: Preliminary Q3 Productivity (Briefing.com consensus 2.3%; prior 2.5%), preliminary Q3 Unit Labor Costs (Briefing.com consensus 0.5%; prior 0.4%), weekly Initial Claims (Briefing.com consensus 222,000; prior 216,000), and Continuing Claims (prior 1.862 mln)
  • 10:00 ET: September Wholesale Inventories (Briefing.com consensus -0.1%; prior 0.1%)
  • 10:30 ET: Weekly natural gas inventories (prior +78 bcf)
  • 14:00 ET: November FOMC Rate Decision (Briefing.com consensus 4.50-4.75%; prior 4.75-5.00%)
  • 15:00 ET: September Consumer Credit (Briefing.com consensus $13.5 bln; prior $8.9 bln)

Editor's note: Sweden's Riksbank cut by 50 basis points, not 25 basis points as previously indicated. The comment has been corrected.