Bond Market Update

Post-CPI Gains Extended

• U.S. Treasuries climbed on Thursday, building on their post-CPI gains from Wednesday. The trading day started with losses that were paced by the belly after a night that saw a policy hold from the Bank of Korea and growing speculation about a rate hike from the Bank of Japan at the end of next week. The lower start gave way to a morning rebound that began taking shape after today's initial batch of data included a slightly smaller than expected increase in December Retail Sales (0.4%; Briefing.com consensus 0.5%) and a larger than expected increase in weekly jobless claims (217,000; Briefing.com consensus 212,000; prior 203,000). The post-data buying returned the market to little changed with Treasuries pushing into the green after Fed Governor Waller reenergized the market's rate cut hopes by saying that up to four cuts could be made this year. Treasuries continued building on their gains into the late afternoon, seeing some light backtracking from highs during the last 30 minutes of trade. Crude oil fell from its best level since mid-July while the U.S. Dollar Index slipped 0.1% to 108.94.
• Yield Check:
  • 2-yr: -2 bps to 4.24%
  • 3-yr: -4 bps to 4.30%
  • 5-yr: -5 bps to 4.40%
  • 10-yr: -5 bps to 4.61%
  • 30-yr: -4 bps to 4.84%

• News:
  • Treasury Secretary nominee Bessent said during his confirmation hearing that pro-growth policies must be pursued while improving the fiscal standing of the United States.
  • The Atlanta Fed's GDPNow forecast for Q4 GDP was increased to 3.0% from 2.7% in the previous estimate. 
  • A survey conducted by the Bank of England found that lenders reported higher funding volumes between September and November, but a decrease was expected in the following three-month period.
  • Bank of Korea left its policy rate at 3.00% against expectations for a 25-basis point cut, though Governor Rhee acknowledged that policymakers believe that rate cuts will be necessary in the coming months.
  • Shanghai Securities News speculated that the People's Bank of China will lower the reserve requirement ratio before the end of the month.
  • Japan Center for Economic Research expects large companies to increase pay by 4.7%.
  • Japan's December PPI was up 0.3% m/m (expected 0.4%; last 0.4%), rising 3.8% yr/yr, as expected (last 3.8%).
  • Australia's January MI Inflation Expectations decelerated to 4.0% from 4.2%. December employment increased by 56,300 (expected 14,500; last 28,200) while full employment decreased by 23,700 (last 49,500). December Unemployment Rate rose to 4.0% from 3.9%, as expected, and Participation Rate ticked up to 67.1% from 67.0% (expected 67.0%).
  • New Zealand's December FPI was up 0.1% m/m (last -0.1%).
  • Eurozone's November trade surplus reached EUR16.4 bln (expected surplus of EUR11.8 bln; last surplus of EUR8.6 bln).
  • Germany's December CPI was up 0.5% m/m (expected 0.4%; last -0.2%), rising 2.6% yr/yr, as expected (last 2.2%).
  • U.K.'s November GDP expanded 0.1% m/m (expected 0.2%; last -0.1%), growing 1.0% yr/yr (expected 1.3%; last 1.1%).
  • Italy's December CPI was up 0.1% m/m, as expected (last -0.1%), rising 1.3% yr/yr, as expected (last 1.3%). November trade surplus reached EUR4.218 bln (expected surplus of EUR4.500 bln; last surplus of EUR5.067 bln).
• Today's Data:
  • Retail sales increased 0.4% month-over-month in December (Briefing.com consensus 0.5%) following an upwardly revised 0.8% increase (from 0.7%) in November. Excluding autos, retail sales also increased 0.4% month-over-month (Briefing.com consensus 0.5%) following an unrevised 0.2% increase in November.
    • The key takeaway from the report is that retail sales, which are not adjusted for price changes, were more subdued than expected in December, suggesting consumers spent in a more considerate manner. Importantly, though, they remained inclined to spend.
  • Initial jobless claims for the week ending January 11 increased by 14,000 to 217,000 (Briefing.com consensus 212,000). Continuing jobless claims for the week ending January 4 decreased by 18,000 to 1.859 million.
    • The key takeaway from the report is that there was nothing disruptive about it in terms of the market's understanding that the labor market, overall, continues to be in pretty good shape. 
  • The January Philadelphia Fed Index soared to 44.3 (Briefing.com consensus -6.0) from an upwardly revised -10.9 (from -16.4) in December. The dividing line between expansion and contraction is 0.0. 
    • The key takeaway from the report is that there was a marked increase in nearly every index component, including new orders (to 42.9 from -3.6) and prices paid (to 31.9 from 26.6), that is indicative of improved demand.
  • December import prices were up 0.1% month-over-month and up 2.2% year-over-year. Export prices were up 0.3% month-over-month and up 1.8% year-over-year.
    • The key takeaway from the report is that import and export prices are tracking in a more subdued manner that is helping to ease some of the market's inflation angst.
  • The NAHB Housing Market Index rose to 47 in January (Briefing.com consensus 45) from 46 in December.
  • Business Inventories rose 0.1% in November (Briefing.com consensus 0.1%) after a revised no change (from 0.1%) in October.
  • Weekly natural gas inventories decreased by 258 bcf after decreasing by 40 bcf a week ago.
• Commodities:
  • WTI crude: -1.2% to $77.82/bbl
  • Gold: +1.2% to $2751.30/ozt
  • Copper: +0.9% to $4.43/lb
• Currencies:
  • EUR/USD: +0.1% to 1.0299
  • GBP/USD: -0.1% to 1.2231
  • USD/CNH: UNCH at 7.3470
  • USD/JPY: -0.7% to 155.28
• The Day Ahead:
  • 8:30 ET: December Housing Starts (Briefing.com consensus 1.318 mln; prior 1.289 mln), Building Permits (Briefing.com consensus 1.454 mln; prior 1.505 mln)
  • 9:15 ET: December Industrial Production (Briefing.com consensus 0.3%; prior -0.1%) and Capacity Utilization (Briefing.com consensus 77.0%; prior 76.8%)
  • 16:00 ET: November Long-Term TIC Flows (prior $152.3 bln)