US Credit Mkt WkAhd:See You In Sep:Congress,Debt Limit,N.Korea

--Traders Eyed Busy High-Grade U.S. Corporate Debt Issuance

By Sheila Mullan

     NEW YORK (MNI) - When traders in the U.S. Treasuries market return to work

Tuesday after the long U.S. Labor Day weekend holiday, they will face such

issues as congressional progress on solving the debt limit situation, the budget

deficit and North Korea worries.

     Meanwhile the U.S. high-grade corporate bond issuance pipeline should be

very busy as summer ends, said syndicate officials.

     Jefferies economists Ward McCarthy and Tom Simons said next week's calendar

"will be backloaded and busy, as we say goodbye to Summer 2017. The economic

data calendar will feature factory orders, the trade balance, and the ISM

Non-Manufacturing Index, in addition to jobless claims, which could be the first

economic data release that shows an impact from Hurricane Harvey and the

resultant flooding."

     They add the "Fed speaking calendar will pick up the pace as policymakers

take an opportunity to get their messages out following their meeting at Jackson

Hole."

     They said the Treasury's auction activity "will be limited to bills, but we

should keep an eye out for Cash Management Bill announcements due to the debt

ceiling. Treasury will also announce 3-years, 10-years, and bonds on Thursday

for auction the following week." (Treasury will sell a $33 billion 26-week bill

auction Sept. 5th, a $39 billion 3-week bill that same day, and a $25 billion

eight-day Cash Management Bill and a $20 billion 4-week bill auction; see

details in below calendar).

     Jefferies economists pointed out next week, "for the first time in a long

time, jobless claims could be the highlight. We expect a roughly 30,000 increase

vs. last week resulting from the devastation resulting from Hurricane Harvey and

the continued flooding in the Greater Houston metropolitan area. It is possible

that the spike could be even larger."

     They used the jobless claims data "following Hurricane Katrina in August

2005 as a template" and found that the "claims print for the week following

Katrina's landfall was up about 10,000 from the prior week. The claims print two

weeks following was up about 100,000 from the average heading into the storm. It

is possible that technological changes over the past 12 years will result in

more efficient claims processing and a bigger, faster jump, but we do not know

for sure" so it "bears watching, with upside risks."

     Other data include Tuesday's factory orders, which "will be dragged down by

aircraft weakness;" Wednesday's "July trade balance that is due to widen if the

advanced release is any indication, the August ISM services index," Thursday

revised Q2 productivity and unit labor costs, they said.

     BMO analysts Ian Lyngen and Aaron Kohli said next week, "the market will

surely be faced with a litany of headlines from Washington, as Congress returns

from the August recess to find a looming debt-ceiling, budget deadline, and the

challenges of funding Hurricane Harvey relief aid."

     "With the backdrop of North Korean geopolitical tensions and the dearth of

economic data, the fundamental inputs will be limited to a few second tier

releases and the Fed's Beige Book," they quipped. "We find ourselves more than

just a little perplexed by the lack of material follow-through" in Treasuries

prices Friday after "the softer employment report, and are nonetheless biased

toward lower yields in the medium-term, with the caveat that as vacations wind

down and the market returns in full force the prevailing range may be tested.

Watch for further consolidation over decisive action."

     The BMO analysts said the August employment report had disappointing

156,000 "headline payroll growth" and "downward revisions totaling -41,000. The

unemployment rate unexpectedly ticked higher, while the participation rate was

unchanged and wages were softer than anticipated, but not as troubling as the

phantom revisions initially implied. The yearly change in total average hourly

earnings was unchanged at 2.5% and for non-supervisory workers, the pace was

2.3% -- both low and holding the broader trend, but not pressing the lower

bound."

     They said "the absence of realized inflation, despite the moderate wage

growth, has been a topic of much debate and the perception that the Fed has

'moved-on' from the divergence arguably leaves the market less sensitive to the

slower pace."

     The BMO analysts pointed out "this leaves it to the Fed to further refine

its messaging regarding the potential for a December hike. And while a tapering

of SOMA reinvestments later this month is a given, our attention will be on the

Fed's economic projections and the perceived path of Fed funds," the BMO

analysts said.

     "There currently exists a gap between OIS and the dot plot that we

anticipate will narrow at the September meeting, as the realities of the data

and absence of inflation prompts the Committee to offer a less ambitious

outlook," they said. "The next round of SEP updates are still a couple of weeks

away and more immediately on the horizon we'll have an array of Fed speakers to

offer any skew the Committee might want in the market as the event nears.

     Traders also eyed the Fed's expected potential guidance at its September

19th-20th FOMC meeting on its balance sheet rundown, which could start to be

implemented in October. The Fed could unveil its balance sheet reduction

strategy -- letting Treasuries and/or MBS run off its portfolio -- at the

September FOMC meeting for an October start date, said traders.

     Once tapering begins, the U.S. Treasury would have to figure out how to

slice its debt issuance to cope with such a runoff of Treasuries. Traders also

eyed a potential December 2017 rate hike but that is way off, with months of

inflation data ahead.

     Meanwhile traders eyed the Sept. 7th European Central Bank policy meeting.

But German Bunds weakened Friday on talk that the ECB may not offer any insight

into what will happen to the current bond buying program when it expires in

December. Analysts had expected that guidance either this month or in October.

     Currently, the ECB is buying E60 billion per month. Analysts have varied

views about what the central bank will do in terms of extending the bond buying

program and or reducing the amount of bonds purchased.

     BMO's Lyngen and Kohli said their "more bullish aspirations" on the

Treasuries market "certainly saw limited satisfaction on Friday and this leaves

us cautious. While we continue to expect that 10-year yields will trade with a

1-handle by the time the debt ceiling and budget debate are resolved, the

consolidation that is currently underway appears poised to continue for at least

a while longer. The Treasury market tone early next week will be key. And

without any clear dip-buying interest from overseas accounts, it will be

difficult to envision a sustainable range break in favor of lower yields."

     -- story also reflects contributions from Giovanny Guerrero of MNI/New York

and Vicki Schmelzer of MNI/New York.

-- A calendar of market events (data, Fed speakers) is below:

     Date/Time ET Prior Data/And MNI Econ Poll Median Estimates 

---------------------------------------------------------------------

05-Sep 0730 Fed Gov. Brainard to speak at the Econ Club of NY in NYC 

05-Sep 0945 * Aug ISM-NY current conditions 62.8/--

05-Sep 1000 ** Jul factory new orders 3.0%/-3.1%

05-Sep 1000 ** Jul factory orders ex transport -0.2%/+0.2%

05-Sep 1000 ** Sep IBD/TIPP Optimism Index 52.2/--

05-Sep 1000 * Aug ETI 133.77 

05-Sep 1130am ET US Tsy $39.0B 13-Week Bill auction  

05-Sep 1130am ET US Tsy $33.0B 26-Week Bill auction  

05-Sep 1300pm ET US Tsy $25.0B 8-Day Bill auction. 

05-Sep 1300pm ET US Tsy $20.0B 4-Week Bill auction 

05-Sep 1310 MinnFed Kashkari:guided Q&A:Carlson Schl Mgmt Minnepls Q/A 

05-Sep 1900 Dallas Fed Kaplan: guided Q&A in Dallas; Q/A 

06-Sep 0700 ** 01-Sep MBA Mortgage Applications -2.3%/-- %

06-Sep 0830 ** Jul trade balance -$43.6B/-$44.8B USD

06-Sep 0855 ** 02-Sep Redbook retail sales m/m +0.2%/-- %

06-Sep 0945 *** Aug Markit Services Index (final) 56.9/--

06-Sep 1000 *** Aug ISM Non-manufacturing Index 53.9/55.6

06-Sep 1000 * Q1 QCEW employment --/-- m 

06-Sep 1400 Fed Reserve releases Beige Bk for Sep19-20 FOMC mtg;Wash DC

06-Sep 1500 * Aug Treasury STRIPS Holdings --B/-- b USD

07-Sep 0830 ** 02-Sep initial weekly jobless claims 236K/246K 

07-Sep 0830 ** Q2 non-farm productivity (f) 0.9%/1.2%

07-Sep 0830 ** Q2 unit labor costs (f) 0.6%/0.6%

07-Sep 0945 * 03-Sep Bloomberg comfort index --/--

07-Sep 1000 * Q2 Service Revenue -1.3%/-- %

07-Sep 1030 ** 01-Sep natural gas stocks w/w --/-- Bcf

07-Sep 1100 ** 01-Sep crude oil stocks ex. SPR w/w -5.4/-- m bbl

07-Sep 12:15pm ET: Cleveld Fed Mester:Econ outlk/pol in Pittsburgh Q/A

07-Sep 1630 ** 06-Sep Fed weekly securities holdings --/-- t USD

07-Sep 1900 NY Fed Dudley:EcoOutlk/Implictn on MonPol:Money Mktrs NY Q&A 

07-Sep 1900 Atl Fed Bostic: Talk on his on econ views in Atlanta, GA; 

07-Sep 2015 KC Fed George On US Econ outlk: Omaha, Neb. Econ Forum 

08-Sep 0845 am ET: Phil Fed Harker:Consumer Fin;credit conf,Philadelphia

08-Sep 1000 ** Jul wholesale inventories 0.4%/ -- %

08-Sep 1000 ** Jul wholesale sales 0.7%/-- %

08-Sep 1100 ** Q3 St. Louis Fed Real GDP Nowcast --/-- %

08-Sep 1115 ** Q3 NY Fed GDP Nowcast --/-- %

08-Sep 1500 * Jul consumer credit $12.4B/$15.0B 

08-Sep 1500 * Aug Treasury Allotments (final) --/ -- b USD

--MNI New York Bureau; tel: +1 212-669-6432; email: sheila.mullan@marketnews.com

[TOPICS: MNUEQ$,M$U$$$,M$$FI$,MN$FI$,MN$FX$]