Bond Market Update

Quiet Start Despite Busy Night

• U.S. Treasuries are on track for a slightly higher start in longer tenors while the 2-yr note is set to begin just below its unchanged level. Treasury futures spent the bulk of the night in a sideways range with a slight upward bias in the long end even though the market received its customary end-of-month flood of data. Japan's Tokyo Core CPI accelerated to 2.4% yr/yr, its fastest pace of growth since March, while July Retail Sales (2.6%; expected 2.8%) and Industrial Production (2.8%; expected 3.6%) growth disappointed. Elsewhere, eurozone's flash headline CPI for August decelerated, slowing to 2.2% from 2.6%, while Core CPI eased to 2.8% yr/yr from 2.9%, and the Unemployment Rate returned to this year's low (6.4%). France saw no payroll growth in Q2 while Spain's Retail Sales beat July expectations (1.0%; expected 0.3%). Altogether, the economic reports from Europe were supportive of an argument for a rate cut next month. The U.S. session will feature the release of Personal Income/Outlays for July, a report that will also factor into domestic rate cut expectations. Overall trading volume, however, is expected to be on the light side due to the looming Labor Day holiday on Monday. Crude oil holds a slight loss while the U.S. Dollar Index is flat at 101.36.
• Yield Check:
  • 2-yr: +2 bps to 3.91%
  • 3-yr: UNCH at 3.76%
  • 5-yr: UNCH at 3.67%
  • 10-yr: -1 bp to 3.86%
  • 30-yr: -1 bp to 4.14%

• News:
  • Chinese property names had a strong showing amid speculation that the government is preparing to offer $5.4 trln to refinance mortgages to lower borrowing costs.
  • People's Bank of China Governor Pan said that monetary policy will remain supportive and that more policies to boost the economy will be studied
  • Germany's engineering association reported a 5.0% drop in orders for July.
  • European Central Bank policymaker Schnabel said that conditions are in place for inflation to reach target by the end of 2025 while policymakers Rehn and Kazaks spoke favorably about a potential rate cut in September.
  • Japan's August Tokyo CPI was up 2.6% yr/yr (last 2.2%) and Tokyo Core CPI was up 2.4% yr/yr (expected 2.2%; last 2.2%). July jobs/applications ratio increased to 1.24 from 1.23 (expected 1.23) and July Unemployment Rate rose to 2.7% from 2.5% (expected 2.5%). July Industrial Production rose 2.8% m/m (expected 3.6%; last -4.2%) and July Retail Sales grew 2.6% yr/yr (expected 2.8%; last 3.8%). July Housing Starts were down 0.2% yr/yr (expected -1.1%; last -6.7%) and Construction Orders jumped 62.8% yr/yr (last -19.7%).
  • South Korea's July Industrial Production was down 3.6% m/m (expected -0.4%; last 0.7%) but up 5.5% yr/yr (expected 7.0%; last 3.8%). July Retail Sales fell 1.9% m/m (last 1.0%).
  • Hong Kong's July Retail Sales fell 11.8% yr/yr (last -9.7%).
  • Australia's July Housing Credit was up 0.5% m/m (last 0.4%) and Private Sector Credit was also up 0.5% m/m, as expected (last 0.6%). July Retail Sales were unchanged m/m (expected 0.3%; last 0.5%).
  • New Zealand's July Building Consents increased 26.2% m/m (last -17.0%).
  • Eurozone's flash August CPI was up 0.2% m/m (last 0.0%), rising 2.2% yr/yr, as expected (last 2.6%). August Core CPI was up 0.3% m/m (last -0.2%), rising 2.8% yr/yr, as expected (last 2.9%). July Unemployment Rate dipped to 6.4% from 6.5% (expected 6.5%).
  • Germany's July Import Price Index was down 0.4% m/m (expected 0.1%; last 0.4%) but up 0.9% yr/yr (expected 1.5%; last 0.7%). August Unemployment increased by 2,000 (expected 17,000; last 17,000) while the Unemployment Rate remained at 6.0%, as expected.
  • U.K.'s August Nationwide HPI was down 0.2% m/m (expected 0.2%; last 0.3%) but up 2.4% yr/yr (expected 2.9%; last 2.1%). July BoE Consumer Credit reached GBP1.215 bln (expected GBP1.300 bln; last GBP869 mln), July Mortgage Lending reached GBP2.79 bln (expected GBP2.45 bln; last GBP2.63 bln), and July Net Lending to Individuals reached GBP4.001 bln (expected GBP3.400 bln; last GBP3.494 bln).
  • France's Q2 nonfarm payrolls were unchanged qtr/qtr, as expected (last 0.0%). Q2 GDP grew 0.2% qtr/qtr (expected 0.3%; last 0.2%), rising 1.0% yr/yr (expected 1.1%; last 1.1%). July Consumer Spending was up 0.3% m/m (expected 0.4%; last -0.6%) and July PPI was up 0.2% m/m (last -0.2%) but down 5.4% yr/yr (last -5.9%). Flash August CPI was up 0.6% m/m (expected 0.5%; last 0.2%), rising 1.9% yr/yr (expected 1.8%; last 2.3%).
  • Italy's July Unemployment Rate fell to 6.5% from 6.9% (expected 7.0%). Flash August CPI was up 0.2% m/m (expected 0.3%; last 0.4%), rising 1.1% yr/yr (expected 1.2%; last 1.3%). August Business Confidence hit 87.1 (expected 87.5; last 87.6) and Consumer Confidence hit 96.1 (expected 99.2; last 98.9).
  • Spain's July Retail Sales were up 1.0% yr/yr (expected 0.3%; last 0.4%). June Current Account surplus reached EUR5.02 bln (last surplus of EUR5.56 bln).
  • Swiss August KOF Leading Indicators rose to 101.6 from 100.6 (expected 100.6).
• Commodities:
  • WTI Crude: -0.1% to $75.83/bbl
  • Gold: -0.3% to $2552.70/ozt
  • Copper: +0.8% to $4.256/lb
• Currencies:
  • EUR/USD: UNCH at 1.1081
  • GBP/USD: +0.1% to 1.3180
  • USD/CNH: -0.2% to 7.0790
  • USD/JPY: +0.3% to 145.40
• Data out Today:
  • 8:30 ET: July Personal Income (Briefing.com consensus 0.2%; prior 0.2%), Personal Spending (Briefing.com consensus 0.5%; prior 0.3%), PCE Prices (Briefing.com consensus 0.2%; prior 0.1%), and Core PCE Prices (Briefing.com consensus 0.1%; prior 0.2%)
  • 10:00 ET: final August University of Michigan Consumer Sentiment (Briefing.com consensus 67.8; prior 67.8)