Bond Market Update

Rising Into August

• U.S. Treasuries are on track for a higher start with shorter tenors expected to pace the early advance. Treasury futures continued rising for about 90 minutes after yesterday's cash close as the market responded to the July FOMC Statement. The market reached highs in the early evening, followed by some backtracking as the night went on. The start of the month brought a sizable batch of data, including China's Caixin Manufacturing PMI (49.8), which fell into contraction for the first time since October, while Australia's Manufacturing PMI (47.5) remained below 50.0 for the sixth month in a row. In Europe, final July Manufacturing PMI readings from Italy (47.4), France (44.0), and Germany (43.2) remained in contraction while Spain (51.0) and the U.K. (52.1) reported modest growth. The Bank of England commenced its easing campaign with a 25-bps rate cut to 5.00%, though the decision was a close call. Crude oil is sustaining yesterday's rebound while the U.S. Dollar Index is up 0.3% at 104.37.
• Yield Check:
  • 2-yr: -5 bps to 4.29%
  • 3-yr: -5 bps to 4.09%
  • 5-yr: -5 bps to 3.95%
  • 10-yr: -5 bps to 4.06%
  • 30-yr: -5 bps to 4.32%

• News:
  • China Securities Daily speculated that the reserve requirement ratio could be reduced as early as this quarter.
  • Energy giant Shell beat quarterly expectations and announced a buyback.
  • Rolls-Royce raised its guidance and reinstated its dividend.
  • BMW reported disappointing results.
  • China's July Caixin Manufacturing PMI hit 49.8 (expected 51.4; last 51.8).
  • Japan's July Manufacturing PMI hit 49.1 (expected 49.2; last 50.0).
  • South Korea's June trade surplus reached $3.62 bln (expected surplus of $5.00 bln; last surplus of $7.99 bln) as imports grew 10.5% yr/yr (expected 13.4%; last -7.5%) and exports rose 13.9% yr/yr (expected 18.4%; last 5.1%). July Manufacturing PMI hit 51.4 (last 52.0).
  • India's July Manufacturing PMI hit 58.1 (expected 59.0; last 58.3).
  • Hong Kong's June Retail Sales were down 9.7% yr/yr (last -11.5%).
  • Australia's July Manufacturing PMI hit 47.5 (expected 47.4; last 47.2). June trade surplus reached AUD5.589 bln (expected AUD5.080 bln; last AUD5.052 bln) as imports grew 0.5% m/m (last 3.3%) and exports rose 1.7% m/m (last 1.3%). Q2 Import Price Index was up 1.0% qtr/qtr (expected -0.9%; last -1.8%) and Export Price Index was down 5.9% qtr/qtr (last -2.1%).
  • Eurozone's July Manufacturing PMI hit 45.8 (expected 45.6; last 45.8) and July Unemployment Rate rose to 6.5% from 6.4% (expected 6.4%).
  • Germany's July Manufacturing PMI hit 43.2 (expected 42.6; last 43.5).
  • U.K.'s July Nationwide HPI was up 0.3% m/m (expected 0.1%; last 0.2%), rising 2.1% yr/yr (expected 1.8%; last 1.5%). July Manufacturing PMI hit 52.1 (expected 51.8; last 50.9).
  • France's July Manufacturing PMI hit 44.0 (expected 44.1; last 45.4).
  • Italy's July Manufacturing PMI hit 47.4 (expected 46.0; last 45.7) and June Unemployment Rate rose to 7.0% from 6.9% (expected 6.8%).
  • Spain's July Manufacturing PMI hit 51.0 (expected 52.5; last 52.3).
• Commodities:
  • WTI Crude: +0.6% to $78.37/bbl
  • Gold: +0.4% to $2483.80/ozt
  • Copper: -1.1% to $4.13/lb
• Currencies:
  • EUR/USD: -0.3% to 1.0792
  • GBP/USD: -0.5% to 1.2794
  • USD/CNH: +0.5% to 7.2562
  • USD/JPY: +0.4% to 150.52
• Data out Today:
  • 8:30 ET: Weekly Initial Claims (Briefing.com consensus 233,000; prior 235,000), Continuing Claims (prior 1.851 mln), preliminary Q2 Productivity (Briefing.com consensus 1.6%; prior 0.2%), and preliminary Q2 Unit Labor Costs (Briefing.com consensus 1.7%; prior 4.0%)
  • 10:00 ET: June Construction Spending (Briefing.com consensus 0.1%; prior -0.1%) and July ISM Manufacturing (Briefing.com consensus 48.5%; prior 48.5%)
  • 10:30 ET: Weekly natural gas inventories (prior +22 bcf)