Bond Market Update

Impressive Finish to Startling Week

• U.S. Treasuries finished a volatile abbreviated week on a slightly higher note, continuing their resilient showing after a Tuesday plunge alongside JGBs. The Friday session proved to be largely uneventful, as Treasuries drifted in a sideways range near their starting levels. There was a slight intraday shift in dynamic, as longer tenors outperformed at the start, but the short end took the lead as the market climbed off morning lows. However, all this developed in a very narrow range, so the movement received little scrutiny. Today's uptick pressured yields by a basis point across the curve, returning yields on 2s and 30s to unchanged for the week. Precious metals remained hot with silver reaching its first pit settlement above $100/ozt while gold approached $5000/ozt. Copper bounced off this week's low, remaining just shy of $6.00/lb, while crude oil rose back above $61/bbl, settling at its best level in more than a week. The U.S. Dollar Index fell 0.8% to 97.62, sliding past its December low to a level last seen in early October.
• Yield Check:
  • 2-yr: -1 bp to 3.60% (UNCH this week)
  • 3-yr: -1 bp to 3.67% (UNCH this week)
  • 5-yr: -1 bp to 3.84% (+1 bp this week)
  • 10-yr: -1 bp to 4.24% (+1 bp this week)
  • 30-yr: -1 bp to 4.83% (+1 bp this week)

• News:
  • President Trump said that he has finished interviewing candidates for his upcoming Fed Chairman nomination.
  • Japan's Lower House was dissolved ahead of a snap election on February 8.
  • Malaysia's central bank left its policy rate at 2.75%, as expected.
  • Bank of England policymaker Greene said that there is a case to be made for moving the bank rate in the opposite direction from the fed funds rate since looser Fed policy would increase British inflation.
  • Japan's December National CPI was down 0.1% m/m (last 0.3%) but up 2.1% yr/yr (last 2.9%). National Core CPI was up 2.4% yr/yr, as expected (last 3.0%). Flash January Manufacturing PMI hit 51.5 (expected 50.1; last 50.0) and flash Services PMI hit 53.4 (last 51.6).
  • South Korea's January Consumer Confidence rose to 110.8 from 109.9.
  • Singapore's December CPI was up 0.3% m/m (last 0.2%), rising 1.2% yr/yr, as expected (last 1.2%). December Core CPI was up 1.2% yr/yr (last 1.2%). Q4 URA Property Index increased 0.6% qtr/qtr (expected 0.7%; last 0.9%).
  • India's flash January Manufacturing PMI hit 56.8 (last 55.0) and flash Services PMI hit 59.3 (last 58.0).
  • Australia's flash January Manufacturing PMI hit 52.4 (last 51.6) and flash Services PMI hit 56.0 (last 51.1).
  • New Zealand's Q4 CPI was up 0.6% qtr/qtr (expected 0.5%; last 1.0%), rising 3.1% yr/yr (expected 3.0%; last 3.0%).
  • Eurozone's flash January Manufacturing PMI hit 49.4 (expected 49.1; last 48.8) and flash Services PMI hit 51.9 (expected 52.6; last 52.4).
  • Germany's flash January Manufacturing PMI hit 48.7 (expected 47.8; last 47.0) and flash Services PMI hit 53.3 (expected 52.6; last 52.7).
  • U.K.'s December Retail Sales rose 0.4% m/m (expected 0.0%; last -0.1%), increasing 2.5% yr/yr (expected 1.0%; last 1.8%). December Core Retail Sales were up 0.3% m/m (expected -0.2%; last -0.4%), rising 3.1% yr/yr (expected 1.4%; last 2.6%). Flash January Manufacturing PMI hit 51.6 (expected 50.6; last 50.6) and flash Services PMI hit 54.3 (expected 51.7; last 51.4).
  • France's flash January Manufacturing PMI hit 51.0 (expected 50.4; last 50.7) and flash Services PMI hit 47.9 (expected 50.3; last 50.1).
• Today's Data:
  • The S&P Global U.S. Manufacturing PMI hit 51.9 in the flash reading for January, up from 51.8 in December.
  • The S&P Global U.S. Services PMI hit 52.5 in the flash reading for January, unchanged from the final December reading.
  • The preliminary final University of Michigan Consumer Sentiment reading for January increased to 56.0 (Briefing.com consensus: 54.0) from the preliminary reading of 54.0 and the final reading of 52.9 for December. In the same period a year ago, the index stood at 71.7.
    • The key takeaway from the report is that consumer sentiment, while improved a bit, is still guarded due to lingering concerns about high prices and softening labor markets.
• Commodities:
  • WTI crude: +2.9% to $61.05/bbl
  • Gold: +1.3% to $4979.60/ozt
  • Copper: +2.9% to $5.95/lb
• Currencies:
  • EUR/USD: +0.5% to 1.1814
  • GBP/USD: +1.0% to 1.3625
  • USD/CNH: -0.2% to 6.9507
  • USD/JPY: -1.6% to 155.90
• The Week Ahead:
  • Monday: November Durable Orders (Briefing.com consensus 1.1%; prior -2.2%) and Durable Orders ex-transport (Briefing.com consensus 0.3%; prior 0.2%) at 8:30 ET; and $69 bln 2-yr Treasury note auction results at 13:00 ET
  • Tuesday: November FHFA Housing Price Index (Briefing.com consensus 0.3%; prior 0.4%) and November S&P Case-Shiller Home Price Index (Briefing.com consensus 1.2%; prior 1.3%) at 9:00 ET; January Consumer Confidence (Briefing.com consensus 90.0; prior 89.1) at 10:00 ET; and $70 bln 5-yr Treasury note auction results at 13:00 ET
  • Wednesday: Weekly MBA Mortgage Index (prior 14.1%) at 7:00 ET; weekly crude oil inventories (prior +3.60 mln) at 10:30 ET; and January FOMC Decision (Briefing.com consensus 3.50-3.75%; prior 3.50-3.75%) at 14:00 ET
  • Thursday: November Trade Balance (Briefing.com consensus -$43.5 bln; prior -$29.4 bln), weekly Initial Claims (Briefing.com consensus 205,000; prior 200,000), Continuing Claims (prior 1.849 mln), revised Q3 Productivity (Briefing.com consensus 4.9%; prior 4.9%) and revised Q3 Unit Labor Costs (Briefing.com consensus -1.9%; prior -1.9%) at 8:30 ET; November Factory Orders (Briefing.com consensus 0.5%; prior -1.3%) and November Wholesale Inventories (prior 0.5%) at 10:00 ET; weekly natural gas inventories (prior -120 bcf) at 10:30 ET; and $44 bln 7-yr Treasury note auction results at 13:00 ET
  • Friday: December PPI (Briefing.com consensus 0.2%; prior 0.2%) and Core PPI (Briefing.com consensus 0.3%; prior 0.0%) at 8:30 ET; and January Chicago PMI (Briefing.com consensus 43.0; prior 43.5) at 9:45 ET