Bond Market Update

Eyeing August Highs

• U.S. Treasuries climbed to end a week that saw a push toward highs from the first full week of August. The trading day started with slim gains after a night that started with a muted showing from Asian equities, followed by gains in European stocks and bonds. Treasuries opened the day with slim gains, racing past their morning highs once it became clear that Fed Chairman Powell is conveying a dovish tone during his appearance at the Jackson Hole Economic Symposium. The Fed Chairman all but confirmed that a rate cut is coming in September, saying that the time has come for a policy adjustment. He added that the central bank will do everything to support a strong labor market and that a good deal of progress has been made toward the goal of price stability. Treasuries reached their best levels about an hour after Fed Chairman Powell began speaking, with longer tenors remaining just below those highs into the close while the 2-yr note hit a fresh session high during the final hour of action. The 2-yr note outperformed throughout the week, expanding the 2s10s spread by eight basis points to -10 bps. Crude oil narrowed this week's loss to about 0.9% while the U.S. Dollar Index fell 0.8% to 100.66, surrendering 1.7% for the week.
• Yield Check:
  • 2-yr: -10 bps to 3.91% (-16 bps this week)
  • 3-yr: -9 bps to 3.73% (-14 bps this week)
  • 5-yr: -8 bps to 3.65% (-12 bps this week)
  • 10-yr: -6 bps to 3.81% (-8 bps this week)
  • 30-yr: -3 bps to 4.10% (-5 bps this week)

• News:
  • Chicago Fed President (non-voter) Goolsbee said that there is a lot of strength in the overall economy and that he agrees with Fed Chairman Powell's assessment of the labor market.
  • The latest consumer expectations survey for the eurozone showed that year-ahead CPI expectations ticked up to 2.8% from 2.7% while the three-year outlook rose to 2.4% from 2.3%.
  • European Central Bank policymaker Kazaks said that he is open to a discussion about a September rate cut and that policy would remain restrictive even after a couple additional cuts.
  • Chinese officials are reportedly planning tariffs for vehicles with large engines. 
  • Japan's July National CPI was up 0.2% m/m (last 0.3%), rising 2.8% yr/yr (last 2.8%). July National Core CPI was up 2.7% yr/yr, as expected (last 2.6%).
  • Singapore's July CPI was down 0.3% m/m (last -0.2%) but up 2.4% yr/yr (expected 2.5%; last 2.4%). July Core CPI was up 2.5% yr/yr (expected 2.9%; last 2.9%).
  • New Zealand's Q2 Retail Sales were down 1.2% qtr/qtr (expected -1.0%; last 0.4%) and Core Retail Sales were down 1.0% qtr/qtr (expected -0.8%; last 0.3%).
  • France's August Business Survey rose to 99 from 95 (expected 96).
• Today's Data:
  • New home sales surged 10.6% month-over-month in July to a seasonally adjusted annual rate of 739,000 units (Briefing.com consensus 628,000) from an upwardly revised 668,000 (from 617,000) in June. On a year-over-year basis, new home sales were up 5.6%.
    • The key takeaway from the report is that new home sales, which are tabulated when contracts are signed, saw an encouraging jump in July that coincided with mortgage rates coming down.
• Commodities:
  • WTI crude: +2.6% to $74.87/bbl
  • Gold: +1.2% to $2547.00/ozt
  • Copper: +1.7% to $4.21/lb
• Currencies:
  • EUR/USD: +0.7% 1.1187
  • GBP/USD: +0.9% to 1.3203
  • USD/CNH: -0.4% to 7.1159
  • USD/JPY: -1.3% to 144.26
• The Week Ahead:
  • Monday: July Durable Orders (prior -6.6%) and Durable Orders ex-transport (prior 0.5%) at 8:30 ET
  • Tuesday: June FHFA Housing Price Index (prior 0.0%) and June S&P Case-Shiller Home Price Index (prior 6.8%) at 9:00 ET; August Consumer Confidence (prior 100.3) at 10:00 ET; and $69 bln 2-yr Treasury note auction results at 13:00 ET
  • Wednesday: Weekly MBA Mortgage Index (prior -10.1%) at 7:00 ET; weekly crude oil inventories (prior -4.65 mln) at 10:30 ET; and $70 bln 5-yr Treasury note auction results at 13:00 ET
  • Thursday: Q2 GDP -- second estimate (prior 2.8%), Q2 GDP Deflator -- second estimate (prior 2.3%), weekly Initial Claims (prior 232,000), Continuing Claims (prior 1.863 mln), advance July goods trade balance (prior -$96.6 bln), advance July Retail Inventories (prior -$96.8 bln), advance Retail Inventories (prior 0.7%), and advance Wholesale Inventories (prior 0.2%) at 8:30 ET; July Pending Home Sales (prior 4.8%) at 10:00 ET; weekly natural gas inventories (prior +35 bcf) at 10:30 ET; and $44 bln 7-yr Treasury note auction results at 13:00 ET
  • Friday: July Personal Income (prior 0.2%), Personal Spending (prior 0.3%), PCE Prices (prior 0.1%), and Core PCE Prices (prior 0.2%) at 8:30 ET; and final August University of Michigan Consumer Sentiment (prior 67.8) at 10:00 ET