Bond Market Update

Bounce Meets Resistance

• U.S. Treasuries retreated on Thursday, pulling back from three days of steady gains. The Thursday pullback started in the overnight futures market alongside other sovereign debt while global tech stocks faced continued turbulence. Additional pressure built at the open after FT reported that Fed Chairman Warsh is open to a rate hike at the upcoming FOMC meeting if inflation does not cool. The long bond staged an early bounce but eventually gave in to the steady pressure that other tenors felt since the start. News of Alphabet's (GOOG) planned $25 bln multi-tranche offering and a rally in the price of oil kept the market under pressure into the afternoon, returning the 2-yr yield to its closing level from Monday ahead of tomorrow's release of July Nonfarm Payrolls (Briefing.com consensus 86,000; prior 57,000) at 8:30 ET. The report will factor into the market's rate hike bets even as Fed Chairman Warsh is trying to wean markets off relying on rate and policy expectations. Crude oil finished back above its 200-day moving average (76.26) while the U.S. Dollar Index rose 0.3% to 99.94.
• Yield Check:
  • 2-yr: +7 bps to 4.25%
  • 3-yr: +6 bps to 4.30%
  • 5-yr: +7 bps to 4.39%
  • 10-yr: +5 bps to 4.67%
  • 30-yr: +4 bps to 5.21%

• News:
  • Iran's state media reported that a draft version of the U.S.-Iran deal, which will be voted on in the Iranian parliament, calls for a ban on U.S.- and Israel-linked vessels in the Strait of Hormuz.
  • Fitch opined that the Bank of Japan will have to continue hiking rates for the yen to continue climbing off multi-decade low against the dollar.
  • South Korea's June Current Account surplus reached $49.73 bln (last surplus of $38.61 bln).
  • Australia's June Building Approvals were up 7.2% m/m, as expected (last -1.6%), rising 8.9% yr/yr, as expected (last 5.5%). June trade surplus reached AUD1.929 bln (expected deficit of AUD1.060 bln; last deficit of AUD2.367 bln) as imports fell 0.2% m/m (last 0.9%) and exports rose 9.6% m/m (last -7.6%).
  • Eurozone's June Retail Sales were down 0.3% m/m (expected 0.1%; last 0.4%) but up 0.7% yr/yr (expected 1.0%; last 1.9%).
  • Germany's June Factory Orders rose 3.1% m/m (expected 0.5%; last 0.3%).
  • France's final Q2 nonfarm payrolls were down 0.1% qtr/qtr, as expected (last -0.1%).
  • Italy's June Industrial Production was down 1.0% m/m (expected 0.3%; last -0.3%), falling 0.6% yr/yr (expected 1.0%; last 1.2%).
  • Spain's June Industrial Production was up 1.1% yr/yr (last 3.1%).
  • Swiss July Unemployment Rate remained at 3.1%, as expected.
• Today's Data:
  • Nonfarm business sector labor productivity increased 1.4% in the second quarter (Briefing.com consensus: 0.8%) following an upwardly revised 0.8% increase (from 0.3%) in the first quarter. Unit labor costs were up 1.3% (Briefing.com consensus: 1.7%) following a downwardly revised 1.3% increase (from 1.8%) in the first quarter.
    • The key takeaway from the report is that rising productivity helped keep labor costs in check.
  • Initial jobless claims for the week ending August 1 increased by 1,000 to 199,000 (Briefing.com consensus: 200,000). Continuing jobless claims for the week ending July 25 increase by 24,000 to 1.801 million.
    • The key takeaway from the report, once again, is the extraordinarily low level of initial jobless claims, which reflects an environment in which employers are still reluctant to cut staff. That will be read as a good sign for economic demand.
  • Wholesale Inventories increased by 0.2% month-over-month in June (Briefing.com consensus 0.3%) after increasing 0.3% in May.
  • Weekly natural gas inventories increased by 33 bcf after increasing by 28 bcf a week ago.
• Commodities:
  • WTI crude: +2.8% to $77.27/bbl
  • Gold: -0.1% to $4300.50/ozt
  • Copper: -0.3% to $6.71/lb
• Currencies:
  • EUR/USD: -0.3% to 1.1524
  • GBP/USD: -0.1% to 1.3458
  • USD/CNH: UNCH at 6.7480
  • USD/JPY: +0.4% to 158.33
• The Day Ahead:
  • 8:30 ET: July Nonfarm Payrolls (Briefing.com consensus 86,000; prior 57,000), Nonfarm Private Payrolls (Briefing.com consensus 69,000; prior 49,000), Unemployment Rate (Briefing.com consensus 4.2%; prior 4.2%), Average Hourly Earnings (Briefing.com consensus 0.3%; prior 0.3%), and Average Workweek (Briefing.com consensus 34.3; prior 34.3)
  • 15:00 ET: June Consumer Credit (Briefing.com consensus $9.0 bln; prior -$0.2 bln)