Bond Market Update

Intraday Reversal Sends 10-Yr Yield Back to 50-Day Average

• U.S. Treasuries finished Wednesday on a firmly higher note after staging an impressive recovery off their morning lows, making for a continuation of resilient intraday action over the past two weeks. The trading day started on a firmly lower note after overnight action saw the release of better-than-feared Services PMI readings from European economies, but the market found support about 30 minutes after the start, embarking on a daylong rebound that was assisted by the release of a below-consensus ADP Employment Change report for November (146,000; Briefing.com consensus 170,000) and the ISM Non-Manufacturing Index for November (52.1%; Briefing.com consensus 55.5%; prior 56.0%). The Index indicated ongoing expansion in the services sector, but at a markedly slower pace than in October. This contrasted with the earlier release of the final November S&P Global U.S. Services PMI (56.1; prior 55.0), which showed an acceleration on a sequential basis. Treasuries stayed on an upward path into the afternoon, finishing on their highs with the 10-yr yield returning to its 50-day moving average (4.179%) after falling ten basis points from its opening peak. Fed Chairman Powell spoke at the Dealbook Conference this afternoon, reiterating that the economy is in a real good shape and that the central bank can afford to be more cautious as it seeks the neutral rate level. Crude oil gave back the bulk of yesterday's advance after finding resistance at its 50-day moving average (70.44) while the U.S. Dollar Index spent the day in a narrow range in the 106.33 area.
• Yield Check:
  • 2-yr: -5 bps to 4.12%
  • 3-yr: -5 bps to 4.08%
  • 5-yr: -4 bps to 4.06%
  • 10-yr: -4 bps to 4.18%
  • 30-yr: -5 bps to 4.35%

• News:
  • President-elect Trump will nominate Paul Atkins as the next Chairman of the Securities and Exchange Commission while Dr. Michael William Faulkender will be nominated as the Deputy Secretary of the Treasury.
  • President-elect Trump named Peter Navarro as senior counselor for trade and manufacturing.
  • China will hold a Central Economic Work Conference next Wednesday and Thursday, and there is speculation that additional stimulus measures will be announced at that time.
  • French Prime Minister Barnier is expected to resign after losing a confidence vote, which was largely expected.
  • Bank of England Governor Bailey repeated that gradual rate cuts are expected to take place next year.
  • European Central Bank policymaker Holzmann said that a rate cut larger than 25 basis points will not happen in December.
  • China's November Caixin Services PMI hit 51.5 (expected 52.5; last 52.0).
  • Japan's November Services PMI hit 50.5 (expected 50.2; last 49.7).
  • India's November Services PMI hit 58.4 (expected 59.2; last 58.5).
  • Hong Kong's November Manufacturing PMI hit 51.2 (last 52.2).
  • Australia's November AIG Construction Index hit -19.0 (last -40.9) and AIG Manufacturing Index hit -17.9 (last -19.7). November Services PMI hit 50.5 (expected 49.6; last 51.0). Q3 GDP expanded 0.3% qtr/qtr (expected 0.5%; last 0.2%), growing 0.8% yr/yr (expected 1.1%; last 1.0%).
  • Eurozone's November Services PMI hit 49.5 (expected 49.2; last 51.6). October PPI was up 0.4% m/m, as expected (last -0.6%) but down 3.2% yr/yr (last -3.4%).
  • Germany's November Services PMI hit 49.3 (expected 49.4; last 51.6).
  • U.K.'s November Services PMI hit 50.8 (expected 50.0; last 52.0). 
  • France's November Services PMI hit 46.9 (expected 45.7; last 49.2).
  • Italy's November Services PMI hit 49.2 (expected 51.1; last 52.4).
  • Spain's November Services PMI hit 53.1 (expected 53.6; last 54.9).
• Today's Data:
  • The ISM Services PMI decreased to 52.1% in November (Briefing.com consensus 55.5%) from 56.0% in October. The dividing line between expansion and contraction is 50.0%, so the November reading reflects services sector activity decelerating from October.
    • The key takeaway from the report is that tariff concerns were mentioned often among respondents considering their outlooks.
  • Factory orders increased 0.2% month-over-month in October following an upwardly revised 0.2% decline (from -0.5%) in September. Excluding transportation, factory orders rose 0.1% on the heels of a 0.1% increase in September. Shipments of manufactured goods fell 0.2% in October following a 0.4% decline in September.
    • The key takeaway from the report is that factory orders picked up following declines in the previous two months.
  • The S&P Global U.S. Services PMI hit 56.1 in the final reading for November, up from October's final reading of 55.0 but down from the flash November reading of 57.0.
  • The ADP Employment Change report pointed to the addition of 146,000 nonfarm payrolls in November (Briefing.com consensus 170,000) and the October increase was revised down to 184,000 from 233,000.
  • The weekly MBA Mortgage Index was up 2.8% after increasing 6.3% a week ago. The Purchase Index rose 5.6% while the Refinance Index fell 0.6%.
  • Weekly crude oil inventories decreased by 5.07 million barrels after decreasing by 1.84 million barrels a week ago.
• Commodities:
  • WTI crude: -2.0% to $68.60/bbl
  • Gold: +0.3% to $2675.50/ozt
  • Copper: UNCH at $4.20/lb
• Currencies:
  • EUR/USD: +0.1% to 1.0515
  • GBP/USD: +0.2% to 1.2701
  • USD/CNH: -0.3% to 7.2772
  • USD/JPY: +0.6% to 150.51
• The Day Ahead:
  • 8:30 ET: Weekly Initial Claims (Briefing.com consensus 213,000; prior 213,000), Continuing Claims (prior 1.907 mln), and October Trade Balance (Briefing.com consensus -$75.1 bln; prior -$84.4 bln)
  • 10:30 ET: Weekly natural gas inventories (prior -2 bcf)