Bond Market Update

Lifted by July Job Losses

• U.S. Treasuries climbed on Friday, extending this week's rebound off July lows with unexpected help from a disappointing Employment Situation report for July. The trading day started with modest gains after a night that saw mixed but limited movement in other sovereign debt and a breather from recent volatility in global tech stocks. The overnight data slate included a stronger-than-expected July trade balance report from China ($112.50 bln; expected $108.60 bln) and a bigger-than-expected increase in France's unemployment rate (to 8.3% from 8.1%; expected 8.2%). The slightly higher start was followed by a rally across the curve in reaction to news that nonfarm payrolls decreased by 23,000 (Briefing.com consensus +86,000) in July while payroll growth in May was slashed to 63,000 from 129,000. Average hourly earnings (0.1%; Briefing.com consensus 0.3%) showed below-consensus growth, slowing the year-over-year rate to 3.2% from 3.4%. Altogether, the report had the market second-guessing its belief that a rate hike could come in September, though Treasuries gave back a good chunk of their gains as the day went on. The post-NFP buying produced fresh lows for the week in yields on the 10-yr note and shorter tenors, but the entire complex backtracked from highs through the rest of the morning. The long bond gave back the bulk of its intraday gain during the pullback while shorter tenors held onto a bigger portion of their gains. Crude oil stayed just above its 200-day moving average (76.37) to end the week while the U.S. Dollar Index touched its lowest level since early June, falling 0.4% to 99.58.
• Yield Check:
  • 2-yr: -5 bps to 4.20% (-9 bps this week)
  • 3-yr: -3 bps to 4.27% (-9 bps this week)
  • 5-yr: -3 bps to 4.36% (-10 bps this week)
  • 10-yr: -2 bps to 4.65% (-10 bps this week)
  • 30-yr: -1 bp to 5.20% (-8 bps this week)

• News:
  • President Trump implemented a 15% tariff on polysilicon products from China and announced a price floor.
  • Chinese AI models from Alibaba and Moonshot are becoming more expensive.
  • FT reported that the European Central Bank was not aware of the Fed's participation in the yen intervention last week.
  • China's July trade surplus reached $112.50 bln (expected surplus of $108.60 bln; last surplus of $125.62 bln) as imports grew 27.5% yr/yr (expected 27.9%; last 36.0%) and exports rose 23.9% yr/yr (expected 22.2%; last 27.0%).
  • Japan's June Household Spending fell 6.4% m/m (expected -3.1%; last 3.7%), dropping 3.3% yr/yr (expected 0.8%; last -0.4%). June Leading Index remained at 116.4 (expected 116.5) and Coincident Indicator was up 0.3% m/m (expected 0.4%; last -0.2%).
  • Germany's June trade surplus reached EUR15.4 bln (expected surplus of EUR17.2 bln; last surplus of EUR19.4 bln) as imports grew 4.4% m/m (expected 1.0%; last -2.6%) and exports rose 0.9% m/m (expected 0.2%; last 1.1%). June Industrial Production was up 0.2% m/m (expected 0.2%; last 0.7%) and was unchanged yr/yr (last -0.1%).
  • France's Q2 Unemployment Rate rose to 8.3% from 8.1% (expected 8.2%). June trade deficit reached EUR5.8 bln (expected deficit of EUR6.5 bln; last deficit of EUR7.7 bln) and June Current Account deficit reached EUR1.40 bln (last deficit of EUR1.20 bln).
  • Swiss Q3 SECO Consumer Climate rose to -33 from -40 (expected -34).
• Today's Data:
  • July nonfarm payrolls decreased by 23,000 (Briefing.com consensus: 86,000). The 3-month average for total nonfarm payrolls decreased to 20,000 from 77,000. June nonfarm payrolls revised to 20,000 from 57,000. May nonfarm payrolls revised to 63,000 from 129,000.
    • July private sector payrolls increased by 30,000 (Briefing.com consensus: 69,000). June private sector payrolls revised to 30,000 from 49,000. May private sector payrolls revised to 61,000 from 97,000.
    • July unemployment rate was 4.1% (Briefing.com consensus: 4.2%) versus 4.2% in June. Persons unemployed for 27 weeks or more accounted for 25.5% of the unemployed versus 27.3% in June. The U6 unemployment rate, which accounts for unemployed and underemployed workers, held steady at 7.9%.
    • July average hourly earnings were up 0.1% (Briefing.com consensus: 0.3%) on the heels of a 0.3% increase in June. Over the last 12 months, average hourly earnings have risen 3.2% versus 3.4% for the 12 months ending in June.
    • The average workweek in July was 34.3 hours (Briefing.com consensus: 34.3) versus 34.3 hours in June. The manufacturing workweek was unchanged at 40.4 hours. Factory overtime edged down 0.1 hour to 3.1 hours.
    • The labor force participation rate decreased to 61.4% from 61.5% in June and the employment-population ratio decreased to 58.9% from 59.0% in June.
  • Consumer credit increased by $14.2 bln in June (Briefing.com consensus $9.0 bln) following a downwardly revised $1.1 billion decline (from -$0.2 billion) in May.
• Commodities:
  • WTI crude: +1.2% to $78.19/bbl
  • Gold: +2.3% to $4,398.00/toz.
  • Copper: -1.8% to $6.59/lb
• Currencies:
  • EUR/USD: +0.4% to 1.1565
  • GBP/USD: +0.3% to 1.3499
  • USD/CNH: -0.1% to 6.7433
  • USD/JPY: -0.5% to 157.58
• The Week Ahead:
  • Monday: Nothing of note
  • Tuesday: July NFIB Small Business Optimism Index (Briefing.com consensus 97.1; prior 97.4) at 6:00 ET; July Existing Home Sales (Briefing.com consensus 4.07 mln; prior 4.09 mln) at 10:00 ET; and $58 bln 3-yr Treasury note auction results at 13:00 ET
  • Wednesday: Weekly MBA Mortgage Index (prior -2.9%) at 7:00 ET; July CPI (Briefing.com consensus 0.1%; prior -0.4%) and Core CPI (Briefing.com consensus 0.2%; prior 0.0%) at 8:30 ET; weekly crude oil inventories (prior +2.48 mln) at 10:30 ET; $42 bln 10-yr Treasury note auction results at 13:00 ET; and July Treasury Budget (Briefing.com consensus -$300.0 bln; prior -$120.3 bln) at 14:00 ET
  • Thursday: July PPI (Briefing.com consensus 0.1%; prior -0.3%), Core PPI (Briefing.com consensus 0.3%; prior -0.3%), weekly Initial Claims (Briefing.com consensus 205,000; prior 199,000), and Continuing Claims (prior 1.801 mln) at 8:30 ET; weekly natural gas inventories (prior +33 bcf) at 10:30 ET; and $25 bln 30-yr Treasury bond auction results at 13:00 ET
  • Friday: July Retail Sales (Briefing.com consensus 0.2%; prior 0.2%) and Retail Sales ex-auto (Briefing.com consensus 0.2%; prior -0.2%) at 8:30 ET; June Business Inventories (Briefing.com consensus 0.1%; prior 0.3%) and preliminary August University of Michigan Consumer Sentiment (Briefing.com consensus 54.5; prior 55.2) at 10:00 ET