Bond Market Update

Treasuries Slip Alongside Rate Cut Odds

• U.S. Treasuries retreated on Thursday, lifting yields toward their highest levels of the week, as September rate cut expectations continued slipping ahead of tomorrow's start of the annual Jackson Hole Economic Symposium. The trading day started with modest losses that were widened in the late morning even though economic data released today was a mixed bag. The weekly Initial Claims report (235,000; Briefing.com consensus 222,000) and the Philadelphia Fed Survey (-0.3; Briefing.com consensus 9.0) disappointed while flash Manufacturing PMI (53.3 from 49.8) showed a return to growth and Services PMI (55.4 from 55.7) showed a slowdown in the pace of expansion. It is worth noting that both PMI reports showed a sharp increase in input prices, which was attributed to tariffs. The mixed set of economic reports was countered by comments from two Fed officials, who pushed back against the case for a September rate cut. The fed funds futures market pointed to a 73.5% implied likelihood of a rate cut on September 17 leading into tomorrow's session that will not feature any data, but Fed Chairman Powell will speak at the Jackson Hole conference at 10:00 ET. Crude oil extended yesterday's gain while the U.S. Dollar Index rose 0.4% to 98.63, reaching its best level in nearly two weeks.
• Yield Check:
  • 2-yr: +5 bps to 3.79%
  • 3-yr: +4 bps to 3.74%
  • 5-yr: +5 bps to 3.86%
  • 10-yr: +3 bps to 4.33%
  • 30-yr: +2 bps to 4.92%

• News:
  • The Department of Justice called on the Fed to fire Lisa Cook, who will be the subject of an investigation by the DoJ.
  • Kansas City Fed President (FOMC voter) Schmid said that he is not in a hurry to cut the fed funds rate range.
  • Cleveland Fed President (non-voter) Hammack said that she does not see a case for a September rate cut.
  • China is considering using yuan-backed stablecoins for settling cross-border trade.
  • South Korea's exports through the first 20 days of August were up 7.6% yr/yr with chip exports jumping 29.5%.
  • Japan's August flash Manufacturing PMI hit 49.9 (expected 49.2; last 48.9) and August flash Services PMI hit 52.7 (last 53.6).
  • South Korea's July PPI was up 0.4% m/m (last 0.1%), rising 0.5% yr/yr (last 0.5%).
  • India's August flash Manufacturing PMI hit 59.8 (expected 59.1; last 59.1) and flash Services PMI hit 65.6 (expected 60.3; last 60.5).
  • Hong Kong's July CPI was up 0.6% m/m (last 0.0%), rising 1.0% yr/yr (expected 0.8%; last 1.4%).
  • Australia's August flash Manufacturing PMI hit 52.9 (last 51.3) and August flash Services PMI hit 55.1 (last 54.1). MI Inflation Expectations slowed to 3.9% from 4.7%.
  • New Zealand's July trade deficit reached NZD578 mln (expected surplus of NZD70 mln; last surplus of NZD203 mln). July Credit Card Spending was up 1.4% yr/yr (last 0.9%).
  • Eurozone's August flash Manufacturing PMI hit 50.5 (expected 49.5; last 49.8) and flash Services PMI hit 50.7 (expected 50.8; last 51.0).
  • Germany's August flash Manufacturing PMI hit 49.9 (expected 48.8; last 49.1) and flash Services PMI hit 50.1 (expected 50.4; last 50.6).
  • U.K.'s June Public Sector Net Borrowing reached GBP1.05 bln (expected GBP2.10 bln; last GBP22.56 bln). August flash Manufacturing PMI hit 47.3 (expected 48.2; last 48.0) and flash Services PMI hit 53.6 (expected 51.8; last 51.8). August CBI Industrial Trends Orders fell to -33 from -30 (expected -28).
  • France's August flash Manufacturing PMI hit 49.9 (expected 48.2; last 48.2) and flash Services PMI hit 49.7 (expected 48.5; last 48.5).
  • Swiss July trade surplus reached CHF4.59 bln (expected surplus of CHF5.15 bln; last surplus of CHF5.73 bln).
• Today's Data:
  • Initial jobless claims for the week ending August 16 increased by 11,000 to 235,000 (Briefing.com consensus: 222,000). Continuing jobless claims for the week ending August 9 increased by 30,000 to 1.972 million, which is the highest level since November 6, 2021.
    • The key takeaway from the report is that it covers the period in which the survey for the August employment report is completed. The jump in initial and continuing claims is apt to keep economists' nonfarm payroll estimates in a soft growth zone.
  • The Philadelphia Manufacturing Business Outlook Survey dropped to -0.3 in August (Briefing.com consensus: 9.0) from 15.9 in July, while the indexes for prices paid (66.8 from 58.8) and prices received (36.1 from 34.8) both went up versus July.
    • The dividing line between expansion and contraction for this survey is 0.0. The overall number, then, reflects a contraction in activity versus the prior month, while the price indexes denote an acceleration in price increases.
  • The S&P Global U.S. Manufacturing PMI hit 53.3 in the flash reading for August, up from 49.8 in July.
  • The S&P Global U.S. Services PMI hit 55.4 in the flash reading for August, down from 55.7 in July.
  • Existing home sales increased 2.0% month-over-month in July to a seasonally adjusted annual rate of 4.01 million (Briefing.com consensus 3.92 million) from an unrevised 3.93 million in June. Sales were up 0.8% on a year-over-year basis.
    • The key takeaway from the report is that a moderation in selling prices, coupled with an increase in inventory (the highest since May 2020), helped boost sales despite the persistence of higher mortgage rates.
  • Conference Board's Leading Economic Index was down 0.1% in July (Briefing.com consensus -0.1%) after being down 0.3% in June.
  • The U.S. Treasury sold $8 bln in 30-yr TIPS at a high yield of 2.650% with a bid-to-cover ratio of 2.78x.
• Commodities:
  • WTI crude: +1.3% to $63.50/bbl
  • Gold: -0.2% to $3381.70/ozt
  • Copper: UNCH at $4.44/lb
• Currencies:
  • EUR/USD: -0.4% to 1.1609
  • GBP/USD: -0.3% to 1.3419
  • USD/CNH: UNCH at 7.1831
  • USD/JPY: +0.7% to 148.36
• No Data on Tomorrow's Schedule