|10-Year: -4/32....2.989%.... GNMAs: .... USD/JPY: 112.03.... EUR/USD: 1.1630|
-- August Retail Sales (actual 0.1%; Briefing.com consensus 0.4%; prior 0.7%), Retail Sales ex-auto (actual 0.3%; Briefing.com consensus 0.5%; prior 0.9%), August Import Prices ex-oil (actual -0.1%; prior -0.3%), and Export Prices ex-agriculture (actual -0.2%; prior 0.0%)
-- August Industrial Production (actual 0.4%; Briefing.com consensus 0.4%; prior 0.4%) and Capacity Utilization (actual 78.1%; Briefing.com consensus 78.3%; prior 78.1%)
-- July Business Inventories (actual 0.6%; Briefing.com consensus 0.6%; prior 0.1%) and Preliminary September Michigan Sentiment Index (actual 100.8; Briefing.com consensus 97.0; prior 96.2)
10-Yr Yield Flirts With 3.00% Again
- U.S. Treasuries ended the week with losses across the curve. Treasury futures faced some selling pressure during overnight trade, as Hong Kong's Hang Seng continued climbing off this year's low while equity markets in Europe also recorded gains. Treasuries followed their lower start with a slip to fresh lows after the release of an August Retail Sales report (actual 0.1%; Briefing.com consensus 0.4%), which was below estimates, but contained an upward revision to the July reading. A bit more selling in mid-morning trade briefly lifted the 10-yr yield to its highest level (3.003%) since the start of August, but midday action saw Treasuries edge up from their lows. The rebound accelerated after Bloomberg reported that President Trump is seeking to impose tariffs on another $200 billion worth of imports from China despite the recent efforts to revive trade talks. The midday bid returned Treasuries to their opening levels, where they remained until the close. The slope of the yield curve faced flattening pressure over the course of the just-completed week, as the 2s10s spread compressed to 21 bps from last Friday's 25 bps while the 2s30s spread tightened by six basis points to 35 bps.
- Yield Check:
- 2-yr: +3 bps to 2.78%
- 5-yr: +3 bps to 2.90%
- 10-yr: +3 bps to 2.99%
- 30-yr: +3 bps to 3.13%
- Mary Daly will become the President of the Federal Reserve Bank of San Francisco on October 1. Ms. Daly has served as the bank's executive vice president and director of research since 2017.
- Total retail sales rose just 0.1% (Briefing.com consensus +0.4%) on the heels of an upwardly revised 0.7% increase (from +0.5%) in July. Excluding autos, retail sales jumped 0.3% (Briefing.com consensus +0.5%) following an upwardly revised 0.9% increase (from +0.6%) in July.
- The upward revisions to the prior month helped mitigate some of the headline disappointment for August, yet the key takeaway from the report is that consumer spending is up and will continue to support real GDP growth in the third quarter.
- The Export/Import Price Index for August revealed price declines for exports and imports for the second straight month. Export prices fell 0.1% and were down 0.2% excluding agricultural exports. Import prices declined 0.6% and were down 0.1% excluding fuel.
- The key takeaway from the report is the recognition that nonfuel import prices have declined for three straight months, underscoring perhaps some of the effects of a stronger dollar. The moderation in nonfuel import prices could help temper budding inflation concerns for the time being.
- Industrial production increased 0.4% in August, as expected, following an upwardly revised 0.4% increase (from 0.1%) in July.August marked the third straight month that industrial production has increased.The capacity utilization rate increased to 78.1% (Briefing.com consensus 78.3%) from a downwardly revised 77.9% (from 78.1%) in July.
- The key takeaway from the report is the understanding that factory output was unchanged, excluding the gain in motor vehicles and parts.
- Total business inventories increased 0.6% in July, as expected, after increasing 0.1% in June. Total business sales increased 0.2% after increasing 0.3% in June.
- The key takeaway from the report is that business sales continued to outpace inventory growth year-over-year, which is a favorable trend that carries the potential to lead to a better pricing environment for businesses.
- The inventories-to-sales ratio increased to 1.34 from 1.33 in June and was down from 1.39 in the same period a year ago
- The preliminary University of Michigan Consumer Sentiment Index hit 100.8 in September (Briefing.com consensus 97.0), which was the second-highest level since 2004. The final reading for August was 96.2.
- The key takeaway from the report is that the pickup in sentiment was widespread across all major socioeconomic groups, which is a good underpinning for solid consumer spending activity.
- WTI crude: +0.5% to $68.98/bbl
- Gold: -0.6% to $1200.80/ozt
- Copper: -1.1% to $2.65/lb
- EUR/USD: -0.5% to 1.1630
- USD/JPY: +0.1% to 112.03
- USD/CNH: +0.5% to 6.879
- The Week Ahead:
- Monday: September Empire Manufacturing (Briefing.com consensus 23.0; prior 25.6)
- Tuesday: September NAHB Housing Market Index (Briefing.com consensus 66; prior 67) at 10:00 ET and July Net Long-Term TIC Flows (prior -$36.50 bln) at 16:00 ET
- Wednesday: weekly MBA Mortgage Index (prior -1.8%) at 7:00 ET; August Housing Starts (Briefing.com consensus 1229K; prior 1168K), Building Permits (Briefing.com consensus 1310K; prior 1311K), and Q2 Current Account Balance (Briefing.com consensus -$103.30 bln; prior -$124.10 bln) at 8:30 ET; and weekly crude inventories (prior -5.3 mln) at 10:30 ET
- Thursday: Weekly Initial Claims (Briefing.com consensus 209K; prior 204K), Continuing Claims (prior 1696K), and September Philadelphia Fed Survey (Briefing.com consensus 15.3; prior 11.9) at 8:30 ET; August Existing Home Sales (Briefing.com consensus 5.37 mln; prior 5.34 mln) and August Leading Indicators (Briefing.com consensus 0.5%; prior 0.6%) at 10:00 ET; and weekly natural gas inventories (prior 69 bcf) at 10:30 ET