Bond Market Update

Inching Higher Ahead of FOMC

• U.S. Treasuries are on track for a slightly higher start that will keep yields on 10s and shorter tenors at their lowest levels of the month ahead of this afternoon's policy statement from the FOMC. Treasury futures spent the overnight session in a narrow range with a slight upward bias despite a busy night. The Bank of Japan raised its policy rate by 15 basis points to 0.25% and Governor Ueda left the door open for another hike this year. The central bank also announced that its asset purchases will be reduced by JPY400 bln each quarter. Elsewhere, eurozone's flash CPI for July accelerated to 2.6% yr/yr from 2.5% while core CPI growth remained at 2.9%. Crude oil is rallying off levels last seen in early June, assisted by an overnight report that the leader of Hamas was assassinated in Iran by an alleged Israeli air strike just hours after Israel claimed to have killed Hezbollah's senior commander in Lebanon. The U.S. Dollar Index is down 0.5% at 104.09.
• Yield Check:
  • 2-yr: UNCH at 4.36%
  • 3-yr: UNCH at 4.17%
  • 5-yr: -1 bp to 4.03%
  • 10-yr: -1 bp to 4.13%
  • 30-yr: -1 bp to 4.39%

• News:
  • Shipments of advanced technology to China from Japan, Netherlands, and South Korea will reportedly be exempt from U.S. restrictions.
  • China's Politburo held a meeting to establish economic priorities for the second half of the year, shifting the focus toward boosting consumption.
  • The Bank of England's Shadow Monetary Policy Committee is calling the Bank of England to hold its bank rate at 5.25% tomorrow.
  • China's July Manufacturing PMI hit 49.4, as expected (last 49.5) and Non-Manufacturing PMI hit 50.2 (expected 50.3; last 50.5).
  • Japan's June Industrial Production was down 3.6% m/m (expected -4.2%; last 3.6%) and June Retail Sales rose 3.7% yr/yr (expected 3.3%; last 2.8%). June Housing Starts fell 6.7% yr/yr (expected -2.3%; last -5.2%) and July Household Confidence rose to 36.7 from 36.4 (expected 36.5).
  • South Korea's June Industrial Production rose 0.5% m/m (expected -0.7%; last -0.6%), increasing 3.8% yr/yr (expected 2.3%; last 4.3%). June Retail Sales were up 1.0% m/m (last -0.2%) and Service Sector Output was up 0.2% m/m (last -0.8%).
  • Singapore's Q2 Unemployment Rate decreased to 2.0% from 2.1% and Q2 Business Expectations rose to 23.0 from 22.0.
  • Hong Kong's Q2 GDP contracted 0.4% qtr/qtr (expected 0.3%; last 2.3%) but grew 3.3% yr/yr (expected 2.7%; last 2.7%).
  • Australia's June Retail Sales were up 0.5% m/m (expected 0.2%; last 0.6%) but down 0.3% qtr/qtr (last -0.4%). June Monthly CPI Indicator slowed to 3.8% yr/yr from 4.0%, as expected.
  • New Zealand's Q2 CPI was up 1.0% qtr/qtr, as expected (last 1.0%), rising 3.8% yr/yr, as expected (last 3.6%). June Private Sector Credit was up 0.6% m/m (expected 0.4%; last 0.4%) and June Building Consents were down 13.8% m/m (last -1.9%).
  • Eurozone's flash July CPI was unchanged m/m (last 0.2%), rising 2.6% yr/yr (expected 2.5%; last 2.5%). July Core CPI was down 0.2% m/m (last 0.4%) but up 2.9% yr/yr (expected 2.8%; last 2.9%).
  • Germany's June Import Price Index was up 0.4% m/m (expected 0.1%; last 0.0%), rising 0.7% yr/yr (expected 0.5%; last -0.4%). July unemployment increased by 18,000 (expected 16,000; last 20,000) and Unemployment Rate remained at 6.0%, as expected.
  • France's flash July CPI was up 0.1% m/m (expected 0.3%; last 0.1%), rising 2.3% yr/yr (expected 2.4%; last 2.2%). June PPI was down 0.3% m/m (last -1.6%), falling 6.0% yr/yr (last -6.7%).
  • Italy's flash July CPI was up 0.5% m/m (expected 0.3%; last 0.1%), rising 1.3% yr/yr (expected 1.2%; last 0.8%). June PPI was up 0.7% m/m (last 0.3%) but down 2.5% yr/yr (last -3.5%).
  • Spain's May Current Account surplus reached EUR5.56 bln (last surplus of EUR2.83 bln).
  • Swiss July ZEW Expectations fell to 9.4 from 17.5.
• Commodities:
  • WTI Crude: +3.6% to $77.40/bbl
  • Gold: +0.5% to $2464.50/ozt
  • Copper: +2.0% to $4.165/lb
• Currencies:
  • EUR/USD: +0.1% to 1.0827
  • GBP/USD: UNCH at 1.2833
  • USD/CNH: -0.2% to 7.2260
  • USD/JPY: -1.6% to 150.15
• Data out Today:
  • 7:00 ET: Weekly MBA Mortgage Index (actual -3.9%; prior -2.2%)
  • 8:15 ET: July ADP Employment Change (Briefing.com consensus 160,000; prior 152,000)
  • 8:30 ET: Q2 Employment Cost Index (Briefing.com consensus 1.0%; prior 1.2%)
  • 10:00 ET: June Pending Home Sales (Briefing.com consensus 1.5%; prior -2.1%)
  • 10:30 ET: Weekly crude oil inventories (prior (-3.74 mln)
  • 14:00 ET: July FOMC Rate Decision (Briefing.com consensus 5.25-5.50%; prior 5.25-5.50%)