Bond Market Update

Short End Behind

• U.S. Treasuries are on track for a modestly lower start with shorter tenors expected to show relative weakness in the early going while the long bond is set to begin near its unchanged level after underperforming yesterday. Treasury futures navigated a sideways range through the night, seeing some brief strength after the focus shifted to action in Europe. President Trump threatened to impose a 100% tariff on imports of semiconductors for companies that do not have production facilities in the U.S., and he also threatened to impose new tariffs on imports from China if China continues buying oil from Russia. Not long ago, the Bank of England announced a 5-4 vote in favor of a 25-basis point rate cut to 4.00%, which was expected. The U.S. session will feature the release of preliminary Unit Labor Costs (Briefing.com consensus 1.5%; prior 6.6%) and Productivity (Briefing.com consensus 2.2%; prior -1.5%) figures for Q2 and the U.S. Treasury will complete this week's note and bond offering slate with a $25 bln 30-yr bond sale at 13:00 ET. Crude oil is rising off its lowest level since early June while the U.S. Dollar Index is little changed at 98.21.
• Yield Check:
  • 2-yr: +3 bps to 3.73%
  • 3-yr: +2 bps to 3.68%
  • 5-yr: +2 bps to 3.78%
  • 10-yr: +2 bps to 4.24%
  • 30-yr: UNCH at 4.81%

• News:
  • China Securities Journal reported that leveraged bets on Chinese equities are at their highest level in a decade.
  • Switzerland's federal council will hold an extraordinary meeting after President Keller-Sutter returned from Washington without a trade deal.
  • Maersk CEO said that the shipping industry continues experiencing uncertainty, though freight rates and demand from China have been resilient.
  • China's July trade surplus reached $98.24 bln (expected surplus of $105.20 bln; last surplus of $114.77 bln) as imports grew 4.1% yr/yr (expected -1.0%; last 1.1%) and exports rose 7.2% yr/yr (expected 5.4%; last 5.8%).
  • Japan's June Leading Index rose to 106.1 from 104.8 (expected 106.0) and Coincident Indicator was up 0.8% m/m (last 0.0%).
  • South Korea's June Current Account surplus $14.27 bln (last surplus of $10.14 bln)
  • Australia's June Building Approvals rose 11.9% m/m, as expected (last 3.2%), and June Private House Approvals were down 2.0% m/m, as expected (last 0.5%). June trade surplus reached AUD5.365 bln (expected surplus of AUD3.180 bln; last surplus of AUD1.604 bln) as imports fell 3.1% m/m (last 3.3%) and exports rose 6.0% m/m (last -3.0%).
  • New Zealand's Q3 Inflation Expectations remained at 2.3%.
  • Germany's June Industrial Production was down 1.9% m/m (expected -0.4%; last -0.1%), falling 3.5% yr/yr (expected -0.6%; last 0.0%). June trade surplus reached EUR14.9 bln (expected surplus of EUR17.8 bln; last surplus of EUR18.6 bln) as imports grew 4.2% m/m (expected 1.0%; last -3.9%) and exports rose 0.8% m/m (expected 0.5%; last -1.4%).
  • U.K.'s July Halfiax House Price Index was up 0.4% m/m (expected 0.1%; last 0.1%), rising 2.4% yr/yr (last 2.7%).
  • France's June Current Account deficit reached EUR3.40 bln (last deficit of EUR2.60 bln). June trade deficit remained at EUR7.6 bln (expected deficit of EUR7.5 bln).
  • Swiss July Unemployment Rate remained at 2.9%.
• Commodities:
  • WTI Crude: +0.4% to $64.62/bbl
  • Gold: +0.5% to $3451.30/ozt
  • Copper: +0.1% to $4.419/lb
• Currencies:
  • EUR/USD: -0.1% to 1.1645
  • GBP/USD: +0.4% to 1.3407
  • USD/CNH: UNCH at 7.1824
  • USD/JPY: UNCH at 147.37
• Data out Today:
  • 8:30 ET: Preliminary Q2 Unit Labor Costs (Briefing.com consensus 1.5%; prior 6.6%), preliminary Q2 Productivity (Briefing.com consensus 2.2%; prior -1.5%), weekly Initial Claims (Briefing.com consensus 220,000; prior 218,000), and Continuing Claims (prior 1.946 mln)
  • 10:00 ET: June Wholesale Inventories (Briefing.com consensus 0.2%; prior -0.3%)
  • 10:30 ET: Weekly natural gas inventories (prior +48 bcf)
  • 15:00 ET: June Consumer Credit (Briefing.com consensus $8.6 bln; prior $5.1 bln)
• Treasury Auctions:
  • 13:00 ET: $25 bln 30-yr Treasury bond auction results