Bond Market Update

Trimming Recent Losses Ahead of FOMC

• U.S. Treasuries are on track for a modestly higher start, looking to recover some of yesterday's losses ahead of an expected rate hike at 14:00 ET. While a rate hike is expected, the market will be curious to hear how hawkish Fed Chairman Warsh sounds during his press conference at 14:30 ET. Treasury futures reached their best levels during the early part of the Asian session, followed by a brief slip to lows, which was reversed quickly. A pullback in the price of oil has contributed to the advance while other sovereign debt has also seen some buying. The market received some data overnight, headlined by U.K.'s CPI report, which showed the second consecutive acceleration in CPI to 3.1% yr/yr while core CPI remained at 2.6% yr/yr for the fourth month in a row. The Bank of England will release its latest decision tomorrow, but a rate hike is not expected. Instead, the central bank is likely to announce that active sales of 20- and 30-yr Gilts will be stopped. Crude oil has slipped back below $105/bbl while the U.S. Dollar Index is up 0.1% at 99.68.
• Yield Check:
  • 2-yr: -3 bps to 4.63%
  • 3-yr: -4 bps to 4.72%
  • 5-yr: -4 bps to 4.79%
  • 10-yr: -3 bps to 4.97%
  • 30-yr: -2 bps to 5.34%

• News:
  • There was some speculation that President Trump and China's President Xi will discuss reducing tariffs on agriculture and energy products when they meet next week.
  • Japan's Prime Minister Takaichi confirmed that she will make changes to her cabinet tomorrow, but key officials are expected to maintain their posts.
  • European Commission President von der Leyen called on member states to admit Canada as an associate member.
  • Japan's August trade deficit reached JPY840 bln (expected deficit of JPY1.00 trln; last deficit of JPY680 bln) as imports grew 28.0% yr/yr (expected 26.3%; last 27.9%) and exports rose 19.3% yr/yr (expected 18.2%; last 23.2%). July Core Machinery Orders were down 3.7% m/m (expected -1.2%; last 9.7%) but up 11.2% yr/yr (expected 15.3%; last 16.9%).
  • Australia's August MI Leading Index was unchanged (last 0.0%).
  • New Zealand's Q3 Westpac Consumer Sentiment rose to 89.5 from 80.4 and Q2 Current Account deficit narrowed to 3.2% of GDP from 3.6% of GDP.
  • Eurozone's July Industrial Production was down 0.1% m/m (expected -0.2%; last -0.1%) and unchanged yr/yr (expected -0.3%; last -0.3%). Q2 Wages rose 3.0% yr/yr (last 3.4%) and Q2 Labor Cost Index was up 3.1% yr/yr (expected 3.0%; last 3.2%).
  • U.K.'s August CPI was up 0.5% m/m, as expected (last 0.3%), rising 3.1% yr/yr, as expected (last 2.9%). August Core CPI was up 0.3% m/m, as expected (last 0.2%), rising 2.6% yr/yr, as expected (last 2.6%). August Input PPI was up 0.3% m/m (expected 0.6%; last -0.8%) and Output PPI was up 0.3% m/m (last 0.5%). August House Price Index rose 1.4% yr/yr (expected 2.1%; last 2.0%).
  • Italy's August CPI was up 0.5% m/m, as expected (last 0.3%), rising 3.3% yr/yr, as expected (last 2.9%).
• Commodities:
  • WTI Crude: -2.3% to $103.39/bbl
  • Gold: +1.4% to $4391.10/ozt
  • Copper: +1.2% to $6.52/lb
• Currencies:
  • EUR/USD: UNCH at 1.1535
  • GBP/USD: -0.1% to 1.3455
  • USD/CNH: -0.1% to 6.7078
  • USD/JPY: UNCH at 155.03
• Data out Today:
  • 7:00 ET: Weekly MBA Mortgage Index (actual -4.1%; prior -2.7%)
  • 8:30 ET: August Retail Sales (Briefing.com consensus 0.9%; prior -0.6%), Retail Sales ex-auto (Briefing.com consensus 0.5%; prior -0.3%), August Import Prices (prior -0.4%), Import Prices ex-oil (prior 0.4%), Export Prices (prior -1.3%), and Export Prices ex-agriculture (prior -1.5%)
  • 10:00 ET: July Business Inventories (Briefing.com consensus 0.2%; prior 0.0%) and September NAHB Housing Market Index (Briefing.com consensus 34; prior 35)
  • 10:30 ET: Weekly crude oil inventories (prior -390,000)
  • 14:00 ET: September FOMC Decision (Briefing.com consensus 3.75-4.00%; prior 3.50-3.75%)
  • 16:00 ET: July Net Long-Term TIC Flows (prior -$172.7 bln)