US TSYS: Light Bear Steepening As Economic Data Remains Resilient
The Treasury curve bear steepened slightly Thursday, with US macroeconomic data resilience remaining a key theme.
- After a constructive overnight session helped by softer-than-expected German inflation data, Treasuries pulled back sharply after today's 0830ET data round.
- Weekly jobless claims saw a second consecutive week extremely close to consensus (231k, cons 232k), ruling out a further additional deterioration in labor conditions. The second reading of Q2 GDP brought a slight upside surprise on the overall growth reading, at 3.0% Q/Q SAAR vs 2.8% in the 1st reading/expected.
- In supply, the 7Y Note auction tailed by 1.0bp, on a high yield of 3.770% vs a 3.760% when-issued yield. Initial Treasury market reaction was slightly negative but the knee-jerk move fully reversed - perhaps because peripheral auction stats were better than the tail suggested.
- Looking ahead to a busy data session Friday, we get MNI Chicago MNI, final UMichigan sentiment, and the July PCE report - MNI's preview here (PDF).
- Latest cash yield levels: The 2-Yr yield is up 2.9bps at 3.8939%, 5-Yr is up 2.8bps at 3.6716%, 10-Yr is up 3.4bps at 3.8691%, and 30-Yr is up 3bps at 4.1546%.
NEWS
FED (MNI): Federal Reserve officials are growing confident they have nearly vanquished the post-Covid surge in inflation, laying the groundwork for a string of interest rate cuts that policymakers would prefer to be gradual but could turn more aggressive if labor market conditions deteriorate significantly.
US (MNI): Hiring by U.S. staffing agencies has plateaued this year as businesses await relief from the Federal Reserve's high interest rates, a likely sign that there will be further cooling in the broader job market, Noah Yosif, chief economist for the American Staffing Association told MNI.
FED (MNI): Richmond Fed President Tom Barkin said Thursday there has been progress on inflation while unemployment remains low. "Big picture, economy, unemployment's still 4%. Inflation's down. We're not all the way there, but we're making progress," Barkin told WV MetroNews from the West Virginia Chamber annual business summit. "Nobody at the Fed has an interest in keeping interest rates high. We only have an interest in bringing inflation down."
US POLITICS (MNI): Capitol Hill is bracing for another round of government funding negotiations to avert a shutdown on October 1. Lawmakers, who return to Washington next week, will immeditately begin work on a Continuing Resolution to fund the government through the general election. Politico reports that House Speaker Mike Johnson (R-LA), “is under pressure from conservatives to quickly pass a long-term spending stopgap with legislation cracking down on noncitizen voting (aka the SAVE Act) attached. “That will be a no-go for the Democratic Senate and White House, so the question is just how confrontational House Republicans want to get right now.”
US POLITICS (MNI): A new survey from Fox News found that Vice President Kamala Harris has improved on President Biden’s 2024 election numbers in the four Sun Belt battleground states (Arizona, Georgia, Nevada, North Carolina), leading in three of the four states, albeit within the polling margin of error.
ECB (MNI): ECB's Nagel's kept his overall hawkish tone at his speech at the CEBRA annual conference. He acknowledged some progress on inflation goals, however, for example on wage growth moderation. "A timely return to price stability cannot be taken for granted. Therefore, we need to be careful and must not lower policy rates too quickly." "We are not there yet. While our 2 % target is in sight, we have not reached it"
OVERNIGHT DATA
US: Another Week With No Further Deterioration In Labor Conditions
- Weekly jobless claims saw a second consecutive week extremely close to consensus, ruling out a further additional deterioration in labor conditions.
- Initial jobless claims dipped to 231k (sa, cons 232k) in the week to Aug 24 after marginally upward revised 233k (initial 232k).
- The four-week moving average fell to 232k from 236k as it continues to leave behind the peak boost from Hurricane Beryl back in mid-July. It compares favorably with the 234k pre-hurricane.
- Continuing claims were 1868k (sa, cons 1870k) in the week to Aug 17 – covering a payrolls reference period – after a downward revised 1855k (initial 1863k).
- They do though continue to stand close to the 1871k from Jul 27 that marked the highest since Nov 2021, and have continued to drift higher since the 1844k and 1832k with the prior payrolls reference periods.
- NSA data for both initial and continuing claims look in keeping with recent themes, including continuing being right at the top end of the years shortly before the pandemic but not pushing relatively higher.
US: Private Consumption Drives Upward Q2 U.S. Growth Revision
The second reading of Q2 GDP brought a slight upside surprise on the overall growth reading, at 3.0% Q/Q SAAR vs 2.8% in the 1st reading/expected. However, on a rounded basis the GDP "beat" wasn't so significant (2.84% to 2.95%).
- The main takeaway from the upgrade is that it was driven by better-than-expected private consumption, which at 2.9% Q/Q SAAR rose at double the unrounded Q1 pace, and well above the 2.2% consensus/2.3% initial reading. This translated into a 1.95pp contribution to overall GDP growth in the quarter, or around two-thirds.
- In turn, services consumption continued to run at a healthy pace (2.85%, vs 3.3% in Q1, with a 4-quarter average of 2.96%), with goods purchases rebounding to a 3-quarter high 3.00% from -2.26% in Q1. Note that we get the first monthly PCE details of Q3 on Friday, with retail sales having been running at a surprisingly strong pace.
- Government consumption, fixed investment (both residential and non-residential), inventories, and net exports (both imports and exports) were all revised modestly to show lower contributions to growth. See table below.
- On net, final sales to domestic purchasers - considered a better underlying gauge of demand - was responsible for all GDP growth in Q2 (2.94pp of 2.95%).
- The GDP upgrade won't be a game-changing revelation for the Fed, which is much more concerned with current labor market dynamics, though this report will serve as a reminder going into September's economic projections that aggregate demand growth remained solid through H2.
GERMANY: German August Inflation Falls On Energy; Sticky Services
The German national flash August HICP print came in lower than expected at +2.0% Y/Y (vs 2.2% cons; 2.6% prior) and -0.2% M/M (vs 0.0% cons; 0.5% prior). This is the first time German HICP ran at or below 2% since March 2021.
- National flash CPI was +1.9% Y/Y (vs 2.1% cons; 1.8% MNI tracking est.; 2.3% prior) and -0.1% M/M (vs 0.0% cons; -0.2 to -0.1% MNI tracking est.; 0.3% prior). Core CPI declined to 2.8% Y/Y (2.7% MNI tracking).
- Of the major sub-categories, services CPI is the most closely watched and remained at 3.9% - we'd expected a bit of a decline to 3.8% - that points towards some ongoing stickiness.
- Goods inflation declined markedly, to 0.0% Y/Y (0.0-0.1% MNI tracking; 0.9% prior) amid an energy inflation drop to -5.1% Y/Y (-5.0% MNI tracking; -1.7% prior).
- Taken by itself, the data provides some downside risks for tomorrow's Eurozone-wide print. Ahead of the national releases, consensus stood at 2.2% Y/Y for headline - but note that Spain also surprised to the downside this morning by 0.1pp on headline HICP (2.4% vs 2.9% prior), and Belgium also saw a notable headline deceleration (4.5% Y/Y vs 5.4% prior).
MARKETS SNAPSHOT: Below gives key levels of markets in afternoon NY trade:
- DJIA up 296.49 points (0.72%) at 41392.87
- S&P E-Mini Future down 0.25 points (0%) at 5611.75
- Nasdaq down 48.5 points (-0.3%) at 17513.73
- US 10-Yr yield is up 3.2 bps at 3.8672%
- US Sep 10-Yr futures (TY) are down 7/32 at 113-10
- EURUSD down 0.004 (-0.36%) at 1.108
- USDJPY up 0.25 (0.17%) at 144.84
- WTI Crude Oil (front-month) up $1.46 (1.96%) at $76.00
- Gold is up $18.58 (0.74%) at $2523.38
Prior European bourses closing levels:
- EuroStoxx 50 up 53.24 points (1.08%) at 4966.27
- FTSE 100 up 35.79 points (0.43%) at 8379.64
- German DAX up 130.28 points (0.69%) at 18912.57
- French CAC 40 up 63.28 points (0.84%) at 7640.95
US TSYS:
* 3M10Y +2.26, -125.773 (L: -131.045 / H: -123.346)
* 1Y10Y +1.651, -55.01 (L: -58.711 / H: -53.103)
* 2Y10Y +0.552, -2.871 (L: -4.515 / H: -1.681)
* 2Y30Y +0.12, 25.686 (L: 24.388 / H: 27.392)
* 5Y30Y +2.345, 48.12 (L: 45.936 / H: 49.044)
Current futures levels:
* Sep 2-Yr futures (TU) down 2/32 at 103-10 (L: 103-09.5 / H: 103-13.5)
* Sep 5-Yr futures (FV) down 4.25/32 at 109-01 (L: 108-29.75 / H: 109-08)
* Sep 10-Yr futures (TY) down 7/32 at 113-10 (L: 113-6 / H: 113-21)
* Sep 30-Yr futures (US) down 13/32 at 123-18 (L: 123-07 / H: 124-14)
* Sep Ultra futures (WN) down 16/32 at 131-25 (L: 131-08 / H: 132-27)
US 10YR FUTURE TECHS: (Z4) Bull Cycle Remains In Play
- RES 4: 116-00 Round number resistance
- RES 3: 115-19 High Aug 5 and the bull trigger
- RES 2: 114-31+ 76.4% of the Aug 5 - 8 pullback
- RES 1: 114-19+ High Aug 21
- PRICE: 113-26+ @ 17:07 BST Aug 29
- SUP 1: 113-23+/20+ Low Aug 29 / 20-day EMA
- SUP 2: 113-00 Aug 8 low
- SUP 3: 112-18 50-day EMA
- SUP 4: 111-28+ High Jul 17
A bullish theme in Treasuries remains intact despite the intraday pullback posted Thursday. The latest sideways move is seen as a pause in the trend, and moving average studies are in a bull-mode position. This continues to highlight positive market sentiment. A resumption of gains would refocus attention on the key resistance and bull trigger at 115-19, the Aug 5 high. Initial resistance to watch is 114-19+, the Aug 21 high. Support to watch is 113-20+, the 20-day EMA.
SOFR FIXES AND PRIOR SESSION REFERENCE RATES
US: SOFR FIX - 29/08/24 - Source BBG/CME
- 1M 5.20055
- 3M 5.01569
- 6M 4.69822
- 12M 4.19705
REPO REFERENCE RATES (rate, change from prev. day, volume):
- Secured Overnight Financing Rate (SOFR): 5.35%, no change, $2030B
- Broad General Collateral Rate (BGCR): 5.34%, no change, $778B
- Tri-Party General Collateral Rate (TGCR): 5.34%, no change, $752B
SOFR holds steady at 5.35% after the recent increases from 5.31%, within recent ranges.
Effective Fed Funds Rate: New York Fed EFFR for prior session (rate, chg from prev day):
- Daily Effective Fed Funds Rate: 5.33%, no change, volume: $95B
- Daily Overnight Bank Funding Rate: 5.33%, no change, volume: $245B
Reverse Repo: Marginal Dip In RRP Usage
- RRP uptake dipped just $5bn to $383bn as it held most of yesterday’s $45bn increase away from levels closer to $300bn.
- The number of counterparties fell back from 74 to 69.
EGBs-GILTS CASH CLOSE: Early Inflation Data-Led Rally Reverses
European curves steepened Thursday, with the German short-end outperforming as inflation data came in weaker than expected.
- EGBs rallied sharply in morning trade as German and Spanish flash August inflation data printed below consensus, spurring analysts to lower their expectations for Friday's Eurozone-wide HICP print (now seen closer to 2.1% Y/Y vs the 2.2% consensus prior to today).
- Global core FI reversed lower in the afternoon as US data showed an upward revision to GDP and steady jobless claims.
- The German and UK curves twist steepened, with Bunds outperforming Gilts.
- Periphery EGB spreads narrowed slightly, as equities rose solidly.
- Friday's calendar includes the aforementioned Eurozone inflation print (as well as Italy and France), Euro unemployment, ECB speakers including Schnabel, and the UK's DMO releasing its quarterly issuance schedule.
Closing Yields / 10-Yr Periphery EGB Spreads To Germany
- Germany: The 2-Yr yield is down 2.8bps at 2.357%, 5-Yr is down 0.9bps at 2.156%, 10-Yr is up 1.3bps at 2.274%, and 30-Yr is up 2.1bps at 2.524%.
- UK: The 2-Yr yield is down 0.2bps at 4.112%, 5-Yr is up 0.5bps at 3.919%, 10-Yr is up 1.8bps at 4.019%, and 30-Yr is up 2.5bps at 4.544%.
- Italian BTP spread down 0.6bps at 138bps / Spanish down 0.7bps at 82.4bps
FOREX: EURUSD Extends Below 1.11 Amid Softer Eurozone Inflation Data
- Softer-than-expected inflation prints in both Germany and Spain have weighed on the Euro on Thursday, with the single currency extending on the prior session losses and EURUSD slipping below the 1.11 handle in the process.
- Today’s price action saw a narrowing of the gap to support at the 20-day EMA, which intersects at 1.1044. However, dips remain corrective at this juncture with a bullish technical theme remaining intact.
- Last week’s appreciation reinforces a bullish set-up and note that moving average studies are in a bull-mode position too, highlighting a rising trend. Sights are on 1.1234 next, a Fibonacci projection.
- Single currency weakness has been broad based, with the likes of EURAUD and EURNZD underperforming, reflective of the strong bounce for equities throughout the session. Furthermore, considerably stronger than expected New Zealand data overnight underpinned the sharp bout of NZD strength. As a reminder, business confidence jumped to a 10-year high in August, alongside the activity outlook rising to 37.1 from 16.3, according to the latest ANZ survey.
- EURGBP has also fallen 0.29%, and a negative close today would extend the losing streak to seven sessions, with the cross revisiting the lows seen across July below the 0.8400 mark. Importantly, we are approaching trendline support drawn from the 2022 low, which intersects at 0.8392 today, just ahead of 0.8383, the July 17 and a key support. A break below these levels amid the continued sterling outperformance would signal scope for a move towards 0.8340, the Aug 2 ’22 low and 0.8311, 3.00 projection of the Aug 8 - 13 - 14 price swing.
- Eurozone HICP inflation headlines the docket on Friday, followed by Canadian GDP and the data highlight of monthly US PCE for July.
MNI (NEW YORK)
| Date | GMT/Local | Impact | Country | Event |
| 30/08/2024 | 2330/0830 | ** |  JP | Tokyo CPI |
| 30/08/2024 | 2330/0830 | * | JP | Labor Force Survey |
| 30/08/2024 | 2350/0850 | * | JP | Retail Sales (p) |
| 30/08/2024 | 2350/0850 | ** | JP | Industrial Production |
| 30/08/2024 | 0030/1030 | ** |  AU | Retail Trade |
| 30/08/2024 | 0600/0800 | ** |  DE | Import/Export Prices |
| 30/08/2024 | 0630/0730 |  GB | UK DMO to release FQ3 issuance calendar | |
| 30/08/2024 | 0645/0845 | *** |  FR | HICP (p) |
| 30/08/2024 | 0645/0845 | ** | FR | PPI |
| 30/08/2024 | 0645/0845 | *** | FR | GDP (f) |
| 30/08/2024 | 0645/0845 | ** | FR | Consumer Spending |
| 30/08/2024 | 0700/0900 | ** |  CH | KOF Economic Barometer |
| 30/08/2024 | 0705/0905 |  EU | ECB's Schnabel at Ragnar Nurkse Lecture | |
| 30/08/2024 | 0735/0935 | EU | ECB's Schnabel in panel at Ragnar Nurkse | |
| 30/08/2024 | 0755/0955 | ** | DE | Unemployment |
| 30/08/2024 | 0800/1000 | ** |  IT | ISTAT Business Confidence |
| 30/08/2024 | 0800/1000 | ** | IT | ISTAT Consumer Confidence |
| 30/08/2024 | 0830/0930 | ** | GB | BOE M4 |
| 30/08/2024 | 0830/0930 | ** | GB | BOE Lending to Individuals |
| 30/08/2024 | 0900/1100 | *** | EU | HICP (p) |
| 30/08/2024 | 0900/1100 | ** | EU | Unemployment |
| 30/08/2024 | 1230/0830 | *** |  US | Personal Income and Consumption |
| 30/08/2024 | 1230/0830 | *** |  CA | GDP - Canadian Economic Accounts |
| 30/08/2024 | 1230/0830 | *** | CA | Gross Domestic Product by Industry |
| 30/08/2024 | 1230/0830 | *** | CA | CA GDP by Industry and GDP Canadian Economic Accounts Combined |
| 30/08/2024 | 1230/0830 | *** | CA | Gross Domestic Product by Industry |
| 30/08/2024 | 1345/0945 | *** | US | MNI Chicago PMI |
| 30/08/2024 | 1400/1000 | ** | US | U. Mich. Survey of Consumers |
| 30/08/2024 | 1500/1100 | CA | Finance Dept monthly Fiscal Monitor (expected) | |
| 30/08/2024 | 1700/1300 | ** | US | Baker Hughes Rig Count Overview - Weekly |
| 31/08/2024 | 0130/0930 | *** |  CN | CFLP Manufacturing PMI |
| 31/08/2024 | 0130/0930 | ** | CN | CFLP Non-Manufacturing PMI |
| 02/09/2024 | 2300/0900 | ** | AU | S&P Global Manufacturing PMI (f) |
| 02/09/2024 | 0030/0930 | ** | JP | S&P Global Final Japan Manufacturing PMI |
| 02/09/2024 | 0130/1130 | * | AU | Building Approvals |
| 02/09/2024 | 0145/0945 | ** | CN | S&P Global Final China Manufacturing PMI |
| 02/09/2024 | 0615/0815 | ** | CH | Retail Sales |
| 02/09/2024 | 0715/0915 | ** |  ES | S&P Global Manufacturing PMI (f) |
| 02/09/2024 | 0745/0945 | ** | IT | S&P Global Manufacturing PMI (f) |
| 02/09/2024 | 0750/0950 | ** | FR | S&P Global Manufacturing PMI (f) |
| 02/09/2024 | 0755/0955 | ** | DE | S&P Global Manufacturing PMI (f) |
| 02/09/2024 | 0800/1000 | ** | IT | PPI |
| 02/09/2024 | 0800/1000 | *** | IT | GDP (f) |
| 02/09/2024 | 0800/1000 | ** | EU | S&P Global Manufacturing PMI (f) |
| 02/09/2024 | 0830/0930 | ** | GB | S&P Global Manufacturing PMI (Final) |
| 03/09/2024 | 2301/0001 | * | GB | BRC-KPMG Shop Sales Monitor |
| 03/09/2024 | 0130/1130 | AU | Balance of Payments: Current Account |