3:44 pm - The Week in Review: Treasuries Endure Week of Selling
The Week Ahead
- Treasuries endured heavy selling this week.
- Friday's nonfarm payroll report (175K actual v. 163K expected) was the standout among this week's data with construction spending (0.1% actual v. -0.1% expected), personal spending (0.4% actual v. 0.1% expected) and the ISM Index (53.2 actual v. 51.6 expected) also topping estimates.
- The jobs report was not all roses as nonfarm private payrolls (162K actual v. 170K expected) missed and the unemployment rate ticked up to 6.7% (6.6% previous).
- Factory orders (-0.7% actual v. -0.5% expected), ISM Services (51.6 actual v. 53.5 expected), productivity-rev. (1.8% actual v. 2.5% expected), and the trade balance (-$39.1B actual v. -$37.3B expected) all missed estimates
- The Fed's Beige Book suggested the economy saw modest to moderate expansion across most districts. Winter weather was the scapegoat in those regions that contracted.
- Traders remain uneasy going into the weekend in regards to the developments in Ukraine. Russian President Vladimir Putin has suggested he is not looking to annex Crimea. However, a referendum on the topic is likely to take place sometime next week. Ukrainian Prime Minister Arseniy Yatsenyuk has stated Crimea is, and will always be, part of Ukraine.
- This week's selling was pretty well dispersed along the curve with yields 5y on up tacking on between 16-18bps.
- Yields tested multi-month lows on Monday, but selling over the course of the week had them at one and a half month highs at Friday's cash close.
- The 5y rallied +17bps, ending the week @ 1.640%. The yield broke out of its 1.450%/1.550% range that had been in place since the beginning of February, and is nearing a test of the key 1.750%/1.800% area.
- The 10y jumped +18bps over the course of the week, closing @ 2.790%. Monday's session produced the first close below the 200 dma since early May, when the Fed first discussed the possibility of tapering. Resistance in the 2.850% area will be watched into next week.
- Selling at the long end caused a +16bp jump in the 30y. The 3.750% level is now in focus as both the 50 and 100 dma aid resistance in the area.
- Significant steepening took hold along the curve with the 2-10-yr spread widening to 242.5bps.
- There is no data on Monday. Philly's Plosser travels to Paris, France to take part in a "Central Bankers" discussion (5:45). Chicago's Evans will discuss economic conditions and monetary policy (12:40).
- Tuesday's data is limited to wholesale inventories (10). Treasury will auction $30 bln 3y notes.
- Wednesday's data includes the weekly MBA Mortgage Index (7) and the Treasury budget (14). Treasury will reopen $21 bln 10y notes.
- Data picks up on Thursday with initial and continuing claims, retail sales, import/export prices (8:30), and business inventories (10). Treasury will hold a $13 bln 30y bond reopening.
- Data for the week concludes on Friday with PPI (8:30) and Michigan Sentiment (9:55). Fed Vice Chair Stanley Fischer gives opening remarks to a dinner event at Stanford University (19:45). The International Research Forum on Monetary Policy's two-day conference begins.
2:24 pm -
Dollar Erases Pre-Nonfarm Payroll Losses, Hovers Little Changed:
- The Dollar Index hovers little changed as trade drifts near 79.70.
- Early selling ahead of the nonfarm payroll report dropped the Index to a four-month low of 79.45 , but the strong reading brought buyers out of the woodwork, allowing trade to retake the flat line.
- EURUSD is +15 pips @ 1.3875 as trade remains on track to close at its best level since the fall of 2011. An early bid catapulted the single currency above the 1.3900 level for the first time since October 2011, but trade gave up the majority of those gains in the aftermath of the U.S. jobs report. The 1.3800 area sets up as a key level to watch. Eurozone data set for Monday is limited to French industrial production.
- GBPUSD is -10 pips @ 1.6730 as action continues to probe its best levels since November 2009. Action over much of the past month has taken place in the 1.6600/1.6800 region, but so far neither bulls nor bears have been able to wrestle away control. This area will be monitored closely in the week ahead.
- USDCHF is -30 pips @ .8775 as trade readies for its worst close since November 2011. Interestingly, the pair has not seen the same snapback as the euro despite its close tie to the single currency as a result of the Swiss National Bank's EURCHF floor. Switzerland's retail sales will be released Monday.
- USDJPY is +25 pips @ 103.30 as buyers remain in control for a fourth session. The four-day advance has busted the pair out of the 101.50/102.50 range that had been in place since the beginning of February, and has trade action on track for its first close above the 50 dma in one and a half months. Near-term resistance now rests in the 104.00 region. Japan's current account balance and Final GDP will cross the wires Sunday evening.
- AUDUSD is -25 pips @ .9065 as action presses lower for the first time in five days. Early strength ran the hard currency to a three-month high near .9135, but the gains were not able to hold as sellers emerged in defense of the 200 dma. Action has since slipped back below the 100 dma, and is now testing the key .9050 area. China's CPI, PPI, and trade balance are due out tonight.
- USDCAD is +110 pips @ 1.1095 as today's advance has erased two days of losses. The pair held little changed into the U.S. and Canadian jobs report before the strong U.S. reading and weak Canadian numbers sparked a buying frenzy. Canada's empoloyment change posted a surprise -7.0K (+16.9K expected) as the unemployment rate held steady at 7.0%. The 1.1150 area is now in focus.
12:54 pm - Afternoon Update: 2y -01/32 @ 99 23/32...3y -04/32 @ 99 18/32...5y -09/32 @ 99 11/32...7y -12/32 @ 98 08/32...10y -14/32 @ 99 19/32...30y -18/32 @ 98 04/32...EURUSD +15 pips @ 1.3875...GBPUSD -20 pips @ 1.6720...USDJPY +25 pips @ 103.30...USDCHF -30 pips @ .8875...AUDUSD -15 pips @ .9075...USDCAD +100 pips @ 1.1085
12:02 pm -
10y Tests 2.80%:
- Treasuries ticked off their worst levels as equities surrendered their early gains.
- The complex has settled into a lull as traders digest action at these new levels.
- Weakness remains most apparent in the belly as yields there trade up as much as +6.5bps.
- The 10y ran as high as 2.821% in the moments following the nonfarm payroll release, but has since pressed back below 2.800%.
- Current action has the benchmark yield +5.5bps near 2.790% as action probes the 50 dma as tests the 50% retracement of the January move.
- Curve steepening persists with the 2-10-yr spread widening to 242.5bps.
- Precious metals remain in the red with gold -$13 @ $1339 and silver -$0.58 @ $20.99.
- Consumer credit will be released at 3pm ET.
11:29 am - Better than Feared Jobs Helps Bounce Dollar off Lows: The Dollar Index tumbled to 79.44 in early trade, its lowest level since October 30. The greenback did see a sharp rise when the jobs data was released as it was better than feared across the board. The trade deficit came in slightly higher than expected but has been completely overshadowed by the jobs number. The DXY was able to rally to 79.86 before meeting some resistance. Consumer credit is still on tap (3pm). Next week is relatively quiet on the economic front with perhaps a confirmation hearing of Stanely Fischer being the most notable item on the calendar.
- The euro has pulled back after hitting 1.3915. This marked the highest level for the single currency in two and a half years. The euro was able to extend gains from yesterday after the ECB decided to stand pat on its monetary policy. It pulled back to 1.3852 where it found support.
- Sterling continues to push towards multi-year highs. Currencies have been gyrating the past few sessions but sterling has been pretty consistent, just consolidating ahead of a potential break out.
- The yen slipped to 103.76 in reaction to the jobs number, its lowest level since January 23. The yen has recovered some of its losses as participants aggressively moved out of risk assets at the start of U.S. equity trading. The 50 sma (103.06) should play a key roll later today.
09:57 am - Treasuries Tick Off Lows:
- Light buying has Treasuries ticking off their worst levels of the morning.
- The complex tumbled to fresh lows following the nonfarm payroll miss, but bears were unable to produce any follow through selling as trade tested support.
- The recent bid has most yields off -3bps from their highs.
- Up front, an uptick of +2.4bps has the 2y @ 0.373%, its highest since late-January.
- A +6bp advance has the 5y near 1.630% as action probes resistance in the area.
- The 10y trades +5.3bps @ 2.790% after climbing as high as 2.821%. Current action is contending with resistance aided by the 50 dma.
- At the long end, the 30y outperforms, -4.2bps @ 3.729%. Traders have the 3.750% area on their radars as resistance there sees help from the 50 and 100 dma.
- A steeper curve remains in play as the 2-10-yr spread trades 241.5bps.
- Precious metals are trapped near their worst levels with gold -$18 @ $1334 and silver -$0.70 @ $20.87.
08:38 am - Data Reaction:
- Treasuries slumped to their worst levels of the session as nonfarm payrolls (175K actual v. 163K expected) topped estimates. The unemployment rate ticked up to 6.7% (6.6% previous).
- Heavy selling has caused yields to break out to their highest levels in one and a half months.
- Selling is having the biggest impact on yields in the belly, which are +7bps.
- The 10y is +6.4bps @ 2.801%, and is back above its 550 dma (2.789%).
- The aggressive selling has swung the yield curve steeper with the 2-10-yr spread widening to 242bps.
- Precious metals are on their worst levels with gold -$14 @ $1339 and silver -$0.61 @ $20.96.
- Consumer credit is due out at 3pm ET.
07:27 am -
Dollar Slumps to Four-Month Lows Ahead of NFPs:
- Early weakness has the Dollar Index trading at 79.45, its lowest levels since the end of October, as traders ready for today's nonfarm payroll report.
- EURUSD is +40 pips @ 1.3900 as trade presses its best levels since October 2011. Overnight data was light with Germany's industrial production (0.8% MoM actual v. 0.7% MoM expected) beat providing support amid comments from Ukrainian Prime Minister Arseniy Yatsenyuk suggesting Crimea is, and will always be, part of Ukraine. The 1.3800 remains key.
- GBPUSD is +25 pips @ 1.6765 as trade looks for a third day of gains. Sterling has rallied in the face of consumer inflation expectations cooling to 2.8% (3.6% previous) with action now testing levels last seen in November 2009.
- USDCHF is -45 pips @ .8760 as early weakness has dropped the pair onto its worst levels since October 2011. The selling comes despite the cooler than anticipated Swiss CPI reading (0.1% MoM actual v. 0.4% MoM expected) and as Swiss foreign currency reserves eased to CHF433.5 bln (CHF437.7 bln). A break of .8500 puts the .8000 area in jeopardy.
- USDJPY is -15 pips @ 102.90 as trade stalls near one-month highs. Yesterday's bid provided a test of 103.00 resistance, but sellers emerged at the level as they also looked to defend the 50 dma. News and data out of Japan remained absent.
- AUDUSD is +40 pips @ .9130 as buyers remain in control for a fifth straight session. Today's bid has the hard currency trading at its best levels in the three months as buyers held strong despite comments from Reserve Bank of Australia Governor Glenn Stevens suggesting the currency is overvalued. The 200 dma (.9165) should provide some near-term resistance while .9300 sets up as a potential longer term target. USDCNY ticked up to 6.1264. Notable is Chaori Solar's failure to make its bond payment, marking the "first" corporate bond default.
- USDCAD is flat @ 1.0985 as trade lingers near three-week lows. The recent two-day skid has shaved off close to -100 pips, and has action probing the 50 dma ahead of Canada's employment change, unemployment rate, labor productivity, and trade balance data.
06:56 am -
Treasuries Hold Small Gains Ahead of Nonfarm Payrolls:
- Treasuries hold small gains as traders await this morning's nonfarm payroll report.
- Light overnight buying has yields off -1bp.
- The 5y is down -0.8bps @ 1.561%. The yield is testing the 50 dma (1.586%) while probing the upper bound of the 1.450%/1.550% region that has been in place since early February.
- The 10y trades -1bp @ 2.727%. Not only do current levels correspond with key resistance helped by the 100 dma, but also the 38.2% retracement of the January move.
- At the long end, the 30y is lower by -1.1bps @ 3.676%. Resistance in the 3.700%/3.750% area is also home to the 200 dma.
- A slightly flatter curve is in the works as the 2-10-yr spread trades 238.5bps.
- Precious metals are lower with gold -$3 @ $1349 and silver -$0.20 @ $21.37.
- Data: Nonfarm payrolls, nonfarm private payrolls, unemployment rate, hourly earnings, average workweek, trade balance (8:30), and consumer credit (15).
- Fed Speak: New York's Dudley discusses local economic conditions (12 noon).