Bond Market Update

Boosted by Renewed Growth Worries

• U.S. Treasuries began September on a higher note, sending yields toward their lows from last week. The trading day started in flat fashion after yesterday's holiday closure. However, the market began rallying immediately after the cash start, continuing its advance alongside a weak open on Wall Street. Investor sentiment was pressured by renewed concerns about growth after China's Manufacturing PMI for August, which was released on Friday night, showed a deepening contraction (49.1; prior 49.4). Treasuries built on their early gains after the final reading of the S&P Global U.S. Manufacturing PMI for August (47.9) also showed a deepening contraction relative to July (49.6) while the ISM Manufacturing Index for August (47.2%; Briefing.com consensus 47.5%; prior 46.8%) improved, but not as much as expected. Adding to the poor string of data, the Construction Spending report for July (-0.3%; Briefing.com consensus 0.2%) missed expectations. Treasuries notched highs just as the market received today's second batch of data, followed by a shallow dip from highs. The advance sent yields on 10s and 30s back to their closing levels from Wednesday while the 2-yr yield ended five basis points above last week's low. Crude oil fell to $70/bbl, approaching its January low (69.28), with global growth concerns fueling the slide, while the U.S. Dollar Index rose 0.2% to 101.83, reaching a two-week high.
• Yield Check:
  • 2-yr: -4 bps to 3.89%
  • 3-yr: -5 bps to 3.74%
  • 5-yr: -6 bps to 3.66%
  • 10-yr: -7 bps to 3.84%
  • 30-yr: -7 bps to 4.13%

• News:
  • Germany's government is planning to reduce its stake in Commerzbank.
  • Sweden's Riksbank is on track for three more rate cuts this year, according to Governor Thedeen.
  • France's Finance Minister Le Maire warned that the country's budget deficit ratio to GDP could exceed 5.5%.
  • Volkswagen is planning to close some factories in Germany due to high energy prices and rising competition from China.
  • Some Japanese companies are delaying or cancelling their bond issuance plans ahead of the Bank of Japan's September policy meeting.
  • China will initiate an anti-dumping investigation into seed oil imports from Canada after Canada implemented a tariff on electric vehicles from China.
  • South Korea's August CPI was up 0.4% m/m (expected 0.3%; last 0.3%) and up 2.0% yr/yr, as expected (last 2.6%).
  • Australia's Q2 Current Account deficit reached AUD10.7 bln (expected deficit of AUD4.5 bln; last deficit of AUD6.3 bln).
  • New Zealand's Q2 Terms of Trade Index was up 2.1% qtr/qtr (expected 2.6%; last 5.1%). Q2 Import Prices rose 3.1% qtr/qtr (expected 0.5%; last -5.1%) and Export Prices rose 5.2% qtr/qtr (expected 2.8%; last -0.3%).
  • France's July budget deficit reached EUR156.8 bln (last deficit of EUR103.5 bln).
  • Spain's August Unemployment increased by 21,900 (expected 34,500; last -10,800).
  • Swiss August CPI was unchanged m/m (expected 0.1%; last -0.2%), rising 1.1% yr/yr (expected 1.2%; last 1.3%). Q2 GDP expanded 0.7% qtr/qtr (expected 0.5%; last 0.5%), growing 1.8% yr/yr (last 0.6%).
• Today's Data:
  • The August ISM Manufacturing Index checked in at 47.2% (Briefing.com consensus 47.5%) versus 46.8% in July. The dividing line between expansion and contraction is 50.0%, so the August reading suggests there was a slower pace of contraction in the manufacturing sector versus the prior month. This was the fifth straight month (and 21st out of 22) that economic activity in the manufacturing sector contracted.
    • The key takeaway from the report is that it has reinforced the understanding that conditions in the U.S. manufacturing sector are weak.
  • The S&P Global U.S. Manufacturing PMI hit 47.9 in the final reading for August, down from 48.0 in the preliminary reading and 49.6 in July's final reading.
  • Total construction spending declined 0.3% month-over-month in July (Briefing.com consensus 0.2%) following an upwardly revised 0.0% (from -0.3%) in June. Total private construction was down 0.4% month-over-month while total public construction was up 0.1% month-over-month. On a year-over-year basis, total construction spending was up 6.7%.
    • The key takeaway from the report is that new single-family construction was weak in July.
• Commodities:
  • WTI crude: -4.3% to $70.37/bbl
  • Gold: -0.2% to $2522.20/ozt
  • Copper: -3.1% to $4.09/lb
• Currencies:
  • EUR/USD: -0.3% to 1.1038
  • GBP/USD: -0.3% to 1.3103
  • USD/CNH: +0.2% to 7.1231
  • USD/JPY: -0.8% to 145.74
• The Day Ahead:
  • 7:00 ET: Weekly MBA Mortgage Index (prior 0.5%)
  • 8:30 ET: July Trade Balance (Briefing.com consensus -$78.5 bln; prior -$73.1 bln)
  • 10:00 ET: July Factory Orders (Briefing.com consensus 4.5%; prior -3.3%) and July job openings (prior 8.184 mln)
  • 14:00 ET: September Fed Beige Book