Bond Market Update

Boosted By Cool PPI

• U.S. Treasuries continued their strong start to the week with shorter tenors leading the market higher after the release of a disinflationary PPI report for July (0.1%; Briefing.com consensus 0.1%). Treasuries opened the day just above their flat lines after a night that saw Japan's Nikkei (+3.5%) rally strongly in its return from Monday's holiday. In Europe, an unexpected decrease in British unemployment has led to speculation that the Bank of England could delay its next rate cut. Treasuries followed their higher start with an immediate extension of their gains after the PPI report showed a cooler-than-expected core reading (0.0%; Briefing.com consensus 0.2%) that caused the yr/yr growth rate to decelerate to 2.4% from 3.0% while headline PPI slowed to 2.2% from 2.7%. Treasuries reached their best levels about an hour after the report's release, staying near their highs into the close ahead of tomorrow's release of July CPI (Briefing.com consensus 0.2%; prior -0.1%) and Core CPI (Briefing.com consensus 0.2%; prior 0.1%). Crude oil gave back some of yesterday's rally, returning below its 50-day moving average (79.08), while the U.S. Dollar Index fell 0.6% to 102.57.
• Yield Check:
  • 2-yr: -8 bps to 3.94%
  • 3-yr: -7 bps to 3.76%
  • 5-yr: -7 bps to 3.68%
  • 10-yr: -6 bps to 3.85%
  • 30-yr: -3 bps to 4.17%

• News:
  • Atlanta Fed President (FOMC voter) Bostic told CNBC that the initial rate cut will happen before the end of the year if economy evolves as expected and that he does not expect a recession.
  • Germany's Economy Minister Habeck said that rate cuts from the European Central Bank will help the construction industry.
  • Economists from Germany's ZEW noted that economic expectations remain pressured by high uncertainty.
  • Grocery store inflation in the U.K. accelerated for the first time since March 2023.
  • Japan will hold a special session of parliament next Friday to discuss the Bank of Japan's rate hike.
  • China's July New Loans reached CNY260.0 bln (expected CNY1.28 trln; last CNY2.13 trln) and total social financing reached CNY770.0 bln (expected CNY1.10 trln; last CNY3.30 trln). July Outstanding Loans grew 8.7% yr/yr (expected 8.8%; last 8.8%).
  • Japan's July PPI was up 0.3% m/m (last 0.2%), rising 3.0% yr/yr, as expected (last 2.9%). July Machine Tool Orders rose 8.4% yr/yr (last 9.7%).
  • South Korea's July Import Price Index was up 9.8% yr/yr (last 9.6%) and Export Price Index was up 12.9% yr/yr (last 12.1%).
  • Singapore's Q2 GDP expanded 0.4% qtr/qtr, as expected (last 0.4%), growing 2.9% yr/yr, as expected (last 3.0%).
  • Australia's August Westpac Consumer Sentiment increased 2.8% (expected 0.5%; last -1.1%). Q2 Wage Price Index was up 0.8% qtr/qtr (expected 0.9%; last 0.9%), rising 4.1% yr/yr (last 4.1%).
  • New Zealand's June Visitor Arrivals decreased 0.2% m/m (last 4.0%).
  • Eurozone's August ZEW Economic Sentiment hit 17.9 (expected 35.4; last 43.7).
  • Germany's August ZEW Economic Sentiment hit 19.2 (expected 32.6; last 41.8) and ZEW Current Conditions hit -77.3 (last -68.9).
  • U.K.'s June Average Earnings Index + Bonus rose 4.5% yr/yr (last 5.7%). July Claimant Count increased by 135,000 (expected 14,500; last 36,200). June three-month employment increased by 97,000 (last 19,000), and June Unemployment Rate fell to 4.2% from 4.4% (expected 4.5%).
  • Spain's July CPI was down 0.5% m/m, as expected (last 0.4%) but up 2.8% yr/yr, as expected (last 3.4%). July Core CPI was up 2.8% yr/yr, as expected (last 3.0%).
• Today's Data:
  • The Producer Price Index for final demand increased 0.1% month-over-month in July (Briefing.com consensus 0.1%). The index for final demand, less foods and energy, was flat (Briefing.com consensus 0.2%) following a downwardly revised 0.3% increase (from 0.4%) in June. On a year-over-year basis, the index for final demand was up 2.2% versus 2.7% in June. The index for final demand, less foods and energy, was up 2.4% versus 2.9% in June.
    • The key takeaway from the report is the disinflation trend in total and core PPI, as that is moving in a necessary direction to drive a rate cut by the Fed.
  • The NFIB Small Business Optimism Index rose to 93.7 in July from 91.5 in June.
• Commodities:
  • WTI crude: -1.9% to $78.37/bbl
  • Gold: +0.1% to $2507.60/ozt
  • Copper: -0.5% to $4.05/lb
• Currencies:
  • EUR/USD: +0.6% to 1.0996
  • GBP/USD: +0.8% to 1.2867
  • USD/CNH: -0.4% to 7.1466
  • USD/JPY: -0.3% to 146.66
• The Day Ahead:
  • 7:00 ET: Weekly MBA Mortgage Index (prior 6.9%)
  • 8:30 ET: July CPI (Briefing.com consensus 0.2%; prior -0.1%) and Core CPI (Briefing.com consensus 0.2%; prior 0.1%)
  • 10:30 ET: Weekly crude oil inventories (prior -3.73 mln)