Bond Market Update

Post-election Slide Moderated as Fed Delivers Expected Cut

• U.S. Treasuries rallied on Thursday, extending their bounce, which began shortly after Wednesday's opening post-election slump. Treasuries exhibited strength from the start with shorter tenors leading the market higher out of the gate while the belly took the lead as the day went on. Treasuries rallied through the release of today's data, which showed a smaller than expected uptick in weekly jobless claims (to 221,000 from 218,000; Briefing.com consensus 222,000) and a preliminary reading of the Q3 Productivity/unit labor costs report that featured a smaller than expected increase in productivity (2.2%; Briefing.com consensus 2.3%) and a bigger than expected rise in labor costs (1.9%; Briefing.com consensus 0.5%). Treasuries reached highs around 11:00 ET, remaining near their best levels into the afternoon. The market dipped from highs in immediate reaction to the 14:00 ET FOMC announcement, which brought the expected 25-bps rate cut to 4.50-4.75%, but it made a renewed push to highs ahead of the close. During his post-decision press conference, Fed Chairman Powell repeated that decisions will be made on a meeting-by-meeting basis, adding that the labor market is not a source of meaningful inflationary pressures at this time. He also said that the election has no immediate impact on the central bank's decision making and that the recent rise in Treasury yields is not a source of concern. Crude oil briefly slipped below its 50-day moving average (70.94) before reclaiming its loss while the U.S. Dollar Index fell 0.7% to 104.39.
• Yield Check:
  • 2-yr: -5 bps to 4.22%
  • 3-yr: -5 bps to 4.18%
  • 5-yr: -8 bps to 4.19%
  • 10-yr: -9 bps to 4.34%
  • 30-yr: -6 bps to 4.54%

• News:
  • The Atlanta Fed's GDPNow forecast for Q4 GDP was increased to 2.5% from 2.4% in the previous estimate.
  • A senior adviser to President-elect Trump said that Fed Chairman Powell will most likely be allowed to complete his term, according to CNN.
  • 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 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.
  • 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%).
• Today's Data:
  • Initial jobless claims for the week ending November 2 increased by 3,000 to 221,000 (Briefing.com consensus 222,000). Continuing jobless claims for the week ending October 26 increased by 39,000 to 1.892 million. That is the highest since November 13, 2021. 
    • The key takeaway from the report is essentially the same as last week. Layoff activity remains calm, but for employees who do get laid off it is more challenging to find a new job, which is a reality consistent with a softening labor market. Nonfarm business sector labor productivity increased 2.2% in the third quarter (Briefing.com consensus 2.3%) following a downwardly revised 2.1% (from 2.5%) for the second quarter.
  • Q3 nonfarm business sector labor productivity increased 2.2% in the third quarter (Briefing.com consensus 2.3%) following a downwardly revised 2.1% (from 2.5%) for the second quarter. Unit labor costs increased 1.9% (Briefing.com consensus 0.5%) following an upwardly revised 2.4% (from 0.4%) in the second quarter.
    • The key takeaway from the report is that productivity growth is helping to keep labor costs in check.
  • Consumer credit increased by $6.0 bln in September (Briefing.com consensus $13.5 bln) after increasing by a revised $7.6 bln (from $8.9 bln) in August.
  • Wholesale Inventories decreased by 0.2% in September (Briefing.com consensus -0.1%) after increasing a revised 0.2% (from 0.1%) in August.
  • Weekly natural gas inventories increased by 69 bcf after increasing by 78 bcf a week ago.
• Commodities:
  • WTI crude: +1.0% to $72.39/bbl
  • Gold: +1.1% to $2706.20/ozt
  • Copper: +4.2% to $4.43/lb
• Currencies:
  • EUR/USD: +0.8% to 1.0809
  • GBP/USD: +0.9% to 1.2987
  • USD/CNH: -0.8% to 7.1481
  • USD/JPY: -1.2% to 152.74
• The Day Ahead:
  • 10:00 ET: Preliminary November University of Michigan Consumer Sentiment (prior 70.5)