Bond Market Update

Morning Bounce Reversed

• U.S. Treasuries tried to fight off early weakness on Tuesday but could not escape selling pressure that sent yields on 10s and shorter tenors to fresh highs for the year. The trading day started with modest losses that were led by the long end after a night that saw a jam-packed global economic calendar. China's RatingDog Manufacturing PMI (51.5) for August showing continued growth, bucking the contractionary trend seen in official PMI readings. Elsewhere, eurozone's Manufacturing PMI for August (52.7) showed stronger than expected growth, thanks in large part to an-above consensus reading from Germany (54.3; expected 54.1). The lower start in Treasuries followed an overnight rise in the price of oil, which took place amid reports of renewed hostilities in the Middle East. Treasuries rallied off their opening lows during the first couple hours of action, briefly lifting longer tenors into positive territory, but an intraday extension of the rally in oil weighed on the complex, producing fresh lows in 10s and shorter tenors in the afternoon. Crude oil extended its daylong rally past $90/bbl after the U.S. Central Command confirmed that strikes against Iran were carried out. The U.S. Dollar Index climbed 0.3% to 99.70, reclaiming yesterday's loss.
• Yield Check:
  • 2-yr: +4 bps to 4.39%
  • 3-yr: +5 bps to 4.46%
  • 5-yr: +5 bps to 4.56%
  • 10-yr: +4 bps to 4.80%
  • 30-yr: +2 bps to 5.27%

• News:
  • The Atlanta Fed's GDPNow forecast for Q3 GDP increased to 4.8% from 4.6% in the previous estimate.
  • The House of Representatives passed a bill to extend government funding to December 11 from September 30.
  • Japan will spend JPY616 bln to extend fuel subsidies.
  • European Central Bank policymaker Rehn said that the conflict in Iran could keep inflation elevated and that the ECB can't show complacency.
  • British Prime Minister Burnham is expected to announce measures to reduce the cost of living later today.
  • NHK reported that Treasury Secretary Bessent told top Japanese officials that more rate hikes are needed from the Bank of Japan.
  • China's August RatingDog Manufacturing hit PMI 51.5 (expected 51.0; last 50.9).
  • Japan's Q2 Capital Spending was up 1.6% yr/yr (expected -0.2%; last 0.0%) and August Manufacturing PMI hit 54.9 (expected 55.1; last 54.5). August Household Confidence rose to 35.5 from 34.9 (expected 35.3).
  • South Korea's August trade surplus reached $34.75 bln (expected surplus of $30.70 bln; last surplus of $30.39 bln) as imports grew 22.5% yr/yr (expected 24.7%; last 26.5%) and exports jumped 68.7% (expected 62.6%; last 63.0%). August Manufacturing PMI hit 52.3 (last 53.1).
  • Australia's August Manufacturing PMI hit 52.0, as expected (last 52.0). Q2 Current Account deficit reached AUD27.2 bln (expected deficit of AUD29.7 bln; last deficit of AUD25.4 bln). July Building Approvals were down 3.6% m/m (expected -4.7%; last 6.9%) and Private House Approvals were down 4.2% m/m (last 0.4%).
  • India's August Manufacturing PMI hit 52.8 (expected 52.9; last 53.5).
  • Eurozone's August Manufacturing PMI hit 52.7 (expected 52.8; last 51.9). Flash August CPI was up 2.9% m/m (last 0.2%), rising 3.3% yr/yr, as expected (last 2.9%). Flash August Core CPI was up 0.2% m/m (last 0.0%), rising 2.4% yr/yr (expected 2.5%; last 2.5%). July Unemployment Rate remained at 6.4% (expected 6.3%).
  • Germany's July Retail Sales were down 3.4% m/m (expected 0.4%; last 0.0%), falling 2.5% yr/yr (last 5.3%). August Manufacturing PMI hit 54.3 (expected 54.1; last 52.2).
  • U.K.'s August Nationwide HPI was up 0.2% m/m (expected 0.1%; last -0.1%), rising 1.6% yr/yr (expected 2.1%; last 1.4%). August Manufacturing PMI hit 51.7 (expected 51.5; last 51.9). July Net Lending to Individuals reached GBP6.30 bln (expected GBP7.20 bln; last GBP9.50 bln) and July Mortgage Approvals hit 56,050 (expected 59,000; last 58,220).
  • France's August Manufacturing PMI hit 51.1 (expected 51.5; last 49.8).
  • Italy's August Manufacturing PMI hit 49.6 (expected 51.4; last 51.3). Q2 GDP expanded 0.2% qtr/qtr, as expected (last 0.2%), growing 1.0% yr/yr, as expected (last 0.8%). July Unemployment Rate remained at 5.8% (expected 5.6%; last 5.8%). Flash August CPI was up 0.5% m/m, as expected (last 0.3%), rising 3.3% yr/yr (last 2.9%).
  • Spain's August Manufacturing PMI hit 49.5 (expected 50.3; last 50.2).
  • Swiss July Retail Sales were up 2.3% yr/yr (expected 1.6%; last 1.9%). August Manufacturing PMI hit 57.1 (expected 54.1; last 53.2).
• Today's Data:
  • The ISM Manufacturing Index decreased to 54.6% in August (Briefing.com consensus: 55.3%) from 55.6% in July. The dividing line between expansion and contraction is 50.0%, so the August figure suggests manufacturing activity expanded in August from the prior month but at a slower pace.
    • The key takeaway from the report is that slower growth was indicated across most report categories. The notable exception was prices, which increased at the same pace as the prior month.
  • Construction spending decreased 0.5% month-over-month in July (Briefing.com consensus: 0.2%) following an upwardly revised unchanged reading (from -0.1%) for June. On a year-over-year basis, construction spending was down 3.8%.
    • The key takeaway from the report is the weakness in the residential sector and particularly in new single-family construction, which is being tested by higher financing costs.
  • The S&P Global U.S. Manufacturing PMI hit 53.9 in the final reading for August, up from 53.2 in the flash reading and unchanged from July's final reading of 53.9.
  • Job openings increased to 7.271 million (Briefing.com consensus 7.390 mln) in July from a revised 7.182 million (from 7.359 million) in June.
• Commodities:
  • WTI crude: +5.2% to $90.28/bbl
  • Gold: -1.8% to $4398.50/ozt
  • Copper: -1.4% to $6.60/lb
• Currencies:
  • EUR/USD: -0.3% to 1.1590
  • GBP/USD: -0.3% to 1.3515
  • USD/CNH: +0.1% to 6.7226
  • USD/JPY: +0.3% to 160.21
• The Day Ahead:
  • 7:00 ET: Weekly MBA Mortgage Index (prior -1.0%)
  • 8:15 ET: August ADP Employment Change (Briefing.com consensus 47,000; prior 44,000)
  • 10:00 ET: July Factory Orders (Briefing.com consensus 0.6%; prior -0.3%)
  • 10:30 ET: Weekly crude oil inventories (prior +4.41 mln)
  • 14:00 ET: September Fed Beige Book