Bond Market Update

April Losses Narrowed

• U.S. Treasuries ended April on a higher note, reclaiming a portion of their losses from this month. The bulk of today's movement took place at the open while the rest of the session saw a sideways drift with the 10-yr yield staying inside a three-basis point range. The trading day started with relative strength up front after a night that saw a pullback in the price of WTI crude after a brief rise above $110/bbl. The market received the customary end-of-month torrent of economic data from major economies with April Manufacturing PMI readings from China showing an ongoing expansion at a slow pace while Non-Manufacturing PMI (49.4) dipped below 50.0, signaling a contraction in the services sector. In Europe, flash Q1 GDP readings from Germany (0.3% qtr/qtr; expected 0.1%), Italy (0.2% qtr/qtr; expected 0.1%), and Spain (0.6% qtr/qtr; expected 0.5%) beat expectations while France lagged (0.0%; expected 0.2%), reporting no growth. Investors also heard policy updates from the Bank of England and the European Central Bank, but there were no rate changes. However, both central banks hinted at rate hikes if energy prices remain elevated. The U.S. session also brought a full slate of data, but the response from Treasuries showed that the market was not surprised by any of it. Q1 GDP expanded at a slower-than-expected pace (2.0%; Briefing.com consensus 2.1%) while weekly Initial Claims (198,000; Briefing.com consensus 217,000) fell back below the 200,000 mark, reflecting little stress in the labor market. Today's advance kept yields on the 10-yr note below their March highs while the 30-yr yield remained at its highest settlement since mid-July. Crude oil narrowed its April gain to $4/bbl while the U.S. Dollar Index fell past its 200-day moving average (98.54), diving 0.9% to 98.05. The greenback fell sharply from this year's high against the yen today while the Index lost 1.8% in April.
• Yield Check:
  • 2-yr: -5 bps to 3.88% (+8 bps in April)
  • 3-yr: -4 bps to 3.91% (+9 bps in April)
  • 5-yr: -4 bps to 4.02% (+7 bps in April)
  • 10-yr: -3 bps to 4.39% (+8 bps in April)
  • 30-yr: UNCH at 4.99% (+10 bps in April)

• News:
  • Standard & Poor's affirmed South Korea's AA rating with a Stable outlook.
  • China's April Manufacturing PMI hit 50.3 (expected 50.1; last 50.4) and Non-Manufacturing PMI hit 49.4 (expected 49.9; last 50.1). April RatingDog Manufacturing PMI hit 52.2 (expected 50.9; last 50.8).
  • Japan's March Industrial Production was down 0.5% m/m (expected 1.0%; last -2.0%) and March Retail Sales rose 1.7% yr/yr (expected 0.9%; last -0.1%). April Household Confidence fell to 32.2 from 33.3 (expected 32.8), March Housing Starts were down 29.3% yr/yr (expected -28.7%; last -4.9%), and Construction Orders fell 14.4% yr/yr (last 42.7%). · South Korea's March Retail Sales rose 1.8% m/m (last -0.3%), March Industrial Production increased 3.6% yr/yr (expected 3.8%; last -2.3%), and March Service Sector Output was up 1.4% m/m (last 0.3%).
  • Singapore's Q1 Unemployment Rate rose to 2.1% from 2.0% and March Bank Lending reached SGD902.3 bln (last SGD893.6 bln). Q1 Business Expectations rose to 17.0 from 11.0. 
  • Australia's March Housing Credit rose 0.6% m/m (last 0.6%), and Private Sector Credit rose 0.7% m/m (expected 0.6%; last 0.6%). Q1 Import Price Index was up 0.1% qtr/qtr (expected 0.4%; last 0.9%) and Export Price Index was up 0.5% qtr/qtr (last 3.2%).
  • New Zealand's April ANZ Business Confidence fell to -10.6 from 32.5.
  • Eurozone's Q1 GDP expanded 0.1% qtr/qtr (expected 0.2%; last 0.2%), growing 0.8% yr/yr (expected 0.9%; last 1.2%). Flash April CPI was up 1.0% m/m (last 1.3%), rising 3.0% yr/yr, as expected (last 2.6%). Flash April Core CPI was up 2.2% yr/yr, as expected (last 2.3%).
  • Germany's Q1 GDP expanded 0.3% qtr/qtr (expected 0.1%; las 0.3%), growing 0.3% yr/yr, as expected (last 0.4%). March Retail Sales were down 2.0% m/m (expected -0.3%; last -0.3%), falling 2.0% yr/yr (expected 0.5%; last 0.9%). March Import Price Index was up 3.6% m/m, as expected (last 0.3%), rising 2.3% yr/yr (expected 1.6%; last -2.3%). April Unemployment increased by 20,000 (expected 4,000; last 3,000), and Unemployment Rate remained at 6.4% (expected 6.3%).
  • France's Q1 GDP was unchanged qtr/qtr (expected 0.2%; last 0.2%), rising 1.1% yr/yr (last 1.3%). Flash April CPI was up 1.0% m/m (expected 0.9%; last 1.0%), rising 2.2% yr/yr (expected 2.0%; last 1.7%). March PPI was up 2.0% m/m (last -0.3%), rising 0.2% yr/yr (last -2.4%). March Consumer Spending was up 0.7% m/m, as expected (last -1.4%).
  • Italy's Q1 GDP expanded 0.2% qtr/qtr (expected 0.1%; last 0.3%), growing 0.7% yr/yr (expected 0.6%; last 0.8%). March Unemployment Rate fell to 5.2% from 5.4% (expected 5.3%). Flash April CPI was up 1.2% m/m (expected 0.9%; last 0.5%), rising 2.8% yr/yr (expected 2.6%; last 1.7%).
  • Spain's Q1 GDP expanded 0.6% qtr/qtr (expected 0.5%; last 0.8%), growing 2.7% yr/yr, as expected (last 2.7%). March Consumer Confidence fell to 66.9 from 83.9. February Current Account surplus reached EUR4.04 bln (last surplus of EUR2.73 bln).
• Today's Data:
  • The Advance Q1 GDP report showed real GDP increasing at an annual rate of 2.0% (Briefing.com consensus: 2.1%) versus 0.5% in the fourth quarter. The GDP Chain Deflator was up 3.6% (Briefing.com consensus: 3.3%) following a 3.7% increase in the fourth quarter.
    • The key takeaway from the report is that the growth was driven by gross private domestic investment, which contributed 1.48 percentage points, and personal consumption expenditures, which contributed 1.08 percentage points to the GDP increase. Not to be overlooked, though, is that the PCE price index was up 4.5%, while the core PCE price index was up 4.3%.
  • The Q1 Employment Cost Index increased 0.9% (Briefing.com consensus: 0.8%) on the heels of a 0.7% increase in Q4, with wages and salaries up 0.8% and benefit costs up 1.2%.
    • The key takeaway from the report is that the increase in wages and salaries for civilian workers over the last 12 months (3.4%) is barely running ahead of inflation.
  • Initial jobless claims for the week ending April 25 decreased by 26,000 to 189,000 (Briefing.com consensus: 217,000). Continuing jobless claims for the week ending April 18 decreased by 23,000 to 1.785 million.
    • The key takeaway from the report is the strikingly low number of initial claims. That just isn't consistent with a labor market that is falling apart—far (very far) from it.
  • Personal income for March increased 0.6% month-over-month (Briefing.com consensus: 0.4%) following an upwardly revised unchanged reading (from -0.1%) for February. Personal spending jumped 0.9% month-over-month (Briefing.com consensus: 0.4%) following an upwardly revised 0.6% increase (from 0.5%) in February. The PCE Price Index increased 0.7% month-over-month (Briefing.com consensus: 0.6%), leaving it up 3.5% yr/yr versus 2.8% in February. The core PCE Price Index rose 0.3% (Briefing.com consensus: 0.3%), leaving it up 3.2% yr/yr versus 3.0% in February.
    • The key takeaway from the report is that spending has remained solid in the face of stubbornly high inflation—a dynamic that is going to leave the Fed disinclined to cut rates.
  • The Chicago PMI hit 49.2 in April (Briefing.com consensus 52.4), down from 52.8 in March.
  • The Leading Economic Index fell 0.6% in March after increasing 0.3% in February.
• Commodities:
  • WTI crude: -1.7% to $105.15/bbl
  • Gold: +1.5% to $4630.90/ozt
  • Copper: +0.7% to $5.98/lb
• Currencies:
  • EUR/USD: +0.6% to 1.1739
  • GBP/USD: +1.0% to 1.3610
  • USD/CNH: -0.2% to 6.8302
  • USD/JPY: -2.5% to 156.35
• The Day Ahead:
  • 9:45 ET: Final April S&P Global U.S. Manufacturing PMI (prior 54.0)
  • 10:00 ET: March Construction Spending (prior NA) and April ISM Manufacturing Index (Briefing.com consensus 53.1%; prior 52.7%)