Bond Market Update

Pullback Deepens

• U.S. Treasuries extended this week's losses during the first session of July, though intraday action was largely confined to a sideways range near rebound highs. The trading day started with sharp losses across the curve as the market awaited Fed Chairman Warsh's appearance at the European Central Bank's policy forum in Portugal. There were no big surprises in his comments, which featured another reminder that he wants markets to be less reliant on guidance from Fed officials. He also acknowledged that while inflation remains elevated, upside risks to inflation have diminished. Treasuries climbed off their starting lows just as Mr. Warsh's appearance concluded, which is when the market also received the ISM Manufacturing Index for June (53.3%; Briefing.com consensus 53.8%; prior 54.0%). The report showed a deceleration in the pace of growth in the manufacturing sector, which was also reflected in the final S&P Global U.S. Manufacturing PMI for June (53.9; flash 55.7). The morning bounce briefly returned the 2-yr note to unchanged while longer tenors stayed well below their flat lines. The rest of the session saw some backtracking that was most pronounced in shorter tenors while longer tenors finished closer to their highs. Crude oil slipped below $69/bbl while the U.S. Dollar Index rose 0.2% to 101.38.
• Yield Check:
  • 2-yr: +2 bps to 4.16%
  • 3-yr: +4 bps to 4.18%
  • 5-yr: +5 bps to 4.23%
  • 10-yr: +6 bps to 4.48%
  • 30-yr: +6 bps to 4.97%

• News:
  • The Atlanta Fed's GDPNow forecast for Q2 GDP was lowered to 1.2% from 2.5% in the latest estimate. 
  • The U.S. will not extend the USMCA trade deal with Canada and Mexico, according to The Wall Street Journal.
  • Japan's Economy Minister Kiuchi said that he hopes that the Bank of Japan works closely with the government to achieve its target amid recent speculation that the Japanese government is pressuring the BoJ to slow the pace of tightening.
  • World Bank will reportedly stop lending to China by 2031.
  • The European Central Bank could double minimum reserve requirements for banks to 2% later this year.
  • China's June RatingDog Manufacturing PMI hit 51.7 (expected 51.9; last 51.8).
  • Japan's June Manufacturing PMI hit 54.8 (expected 54.9; last 54.5). Q2 All Big Industry CAPEX was up 11.5% (last 3.3%) and All Small Industry CAPEX was down 8.3% (last -8.1%). Q2 Tankan Large Manufacturers Index rose to 22 from 17 (expected 16) and Large Non-Manufacturers Index rose to 17 from 14 (expected 13). June Household Confidence rose to 33.8 from 33.6 (expected 34.1).
  • South Korea's June Manufacturing PMI hit 52.1 (last 54.8). June trade surplus reached $36.15 bln (last surplus of $27.04 bln) as imports grew 30.1% yr/yr (last 20.7%) and exports grew 70.9% yr/yr (last 53.4%).
  • Australia's June Manufacturing PMI hit 51.5 (expected 51.2; last 50.7). June AIG Construction Index fell to -38.1 from -11.2 and AIG Manufacturing Index rose to -16.8 from -21.3. May Building Approvals were down 1.1% m/m (expected 0.5%; last -0.2%) but up 5.3% yr/yr (last 10.9%). May Private House Approvals rose 2.8% m/m (last -1.0%). June Commodity Prices were up 16.9% yr/yr (last 16.8%).
  • India's June Manufacturing PMI hit 54.2 (expected 54.5; last 55.0).
  • Singapore's May Bank Lending reached SGD917.7 bln (last SGD908.4 bln).
  • Eurozone's flash June CPI was down 0.1% m/m (last 0.1%) but up 2.8% yr/yr (expected 3.0%; last 3.2%). Flash June Core CPI was up 0.2% m/m (last 0.3%), rising 2.4% yr/yr (expected 2.5%; last 2.6%). June Manufacturing PMI hit 51.4 (expected 51.3; last 51.6)
  • Germany's June Manufacturing PMI hit 50.3 (expected 50.0; last 50.1).
  • U.K.'s June Nationwide HPI was unchanged m/m (expected 0.1%; last -0.6%), rising 2.2% yr/yr (expected 2.4%; last 1.7%). June Manufacturing PMI hit 52.5 (expected 53.1; last 53.9).
  • France's June Manufacturing PMI hit 51.2 (expected 50.7; last 49.7).
  • Italy's June Manufacturing PMI hit 52.2 (expected 52.4; last 52.9). Q1 Public Deficit was up 7.8% (last -1.4%).
  • Spain's June Manufacturing PMI hit 49.7 (expected 51.0; last 51.2).
  • Swiss May Retail Sales rose 3.5% yr/yr (expected 1.8%; last 1.7%). June Manufacturing PMI hit 54.3 (expected 56.4; last 57.3).
• Today's Data:
  • The ADP Employment Change report pointed to the addition of 98,000 nonfarm payrolls in June (Briefing.com consensus 112,000), down from 122,000 in May.
  • The ISM Manufacturing Index dipped to 53.3% in June (Briefing.com consensus 53.8%) from 54.0% in May. The dividing line between expansion and contraction is 50.0%, so the June figure suggests manufacturing activity expanded in June but at a slightly slower pace than the prior month.
    • The key takeaway from the report is that there was a general slowdown indicated versus May across most components of the report, yet the slowdown that will matter most is the one seen in the prices index, which is still quite high but nonetheless moving in the preferred direction.
  • Construction spending increased 0.1% month-over-month in May (Briefing.com consensus: 0.5%) after increasing a downwardly revised 0.3% (from 0.4%) in April. On a year-over-year basis, construction spending was down 1.5%.
    • The key takeaway from the report is that public construction spending was the driver of the modest growth in total construction spending in June. Private construction spending activity was disappointing.
  • The S&P Global U.S. Manufacturing PMI hit 53.9 in the final reading for June, down from 55.7 in the flash reading.
  • The weekly MBA Mortgage Index was unchanged after increasing 1.0% a week ago. The Purchase Index was up 0.5% while the Refinance Index was down 0.7%.
  • Weekly crude oil inventories decreased by 3.78 mln barrels after decreasing by 6.09 mln barrels a week ago.
• Commodities:
  • WTI crude: -1.2% to $68.69/bbl
  • Gold: +1.0% to $4081.80/ozt
  • Copper: -1.1% to $6.18/lb
• Currencies:
  • EUR/USD: -0.4% to 1.1379
  • GBP/USD: +0.2% to 1.3278
  • USD/CNH: +0.1% to 6.7947
  • USD/JPY: UNCH at 162.52
• The Day Ahead:
  • 8:30 ET: June Nonfarm Payrolls (Briefing.com consensus 110,000; prior 172,000), Nonfarm Private Payrolls (Briefing.com consensus 88,000; prior 120,000), Unemployment Rate (Briefing.com consensus 4.3%; prior 4.3%), Average Hourly Earnings (Briefing.com consensus 0.3%; prior 0.3%), Average Workweek (Briefing.com consensus 34.3; prior 34.3), weekly Initial Claims (Briefing.com consensus 220,000; prior 215,000), and Continuing Claims (prior 1.821 mln)
  • 10:00 ET: May Factory Orders (Briefing.com consensus 1.5%; prior 4.8%)
  • 10:30 ET: Weekly natural gas inventories (prior +76 bcf)
  • 14:00 ET: Treasury market early close