Treasury Market Summary
FOMC Solidifies "Higher for Longer" Narrative
- U.S. Treasuries ended the midweek session on a mixed note after reversing from highs in reaction to the FOMC Statement for September. Treasuries spent the first few hours of action in a slow rise that pressured yields on 10s and shorter tenors from their highest levels of the year. The early advance sent yields back to yesterday's lows, but the entire complex succumbed to renewed selling pressure as the market received the September FOMC Statement. As expected, the Statement did not call for another rate hike at this time, but the accompanying economic projections pointed to a higher degree of hawkishness among policymakers. The FOMC maintained its median rate forecast for this year, but the forecast for 2024 was increased to 4.60-5.40% from 4.40-5.10%. This means that the FOMC currently sees only about 50 bps of potential rate cuts next year, down from 100 bps in June. With regards to inflation, the FOMC lowered its median core PCE inflation forecast for this year to 3.7% from 3.9% while the forecast for 2024 was left unchanged at 2.6%. During his press conference, Fed Chairman Powell repeated that slowing inflation will require a period of below-trend GDP and that full effects of tightening have not been seen yet. The post-FOMC volatility sent the 2-yr note back into the red while longer tenors finished closer to the midpoint of today's range. Crude oil backed off its highest level since early November while the U.S. Dollar Index fell 0.1% to 105.11.
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YieldCheck:
- 2-yr: +1 bp to 5.13%
- 3-yr: +1 bp to 4.81%
- 5-yr: -1 bp to 4.52%
- 10-yr: -2 bps to 4.35%
- 30-yr: -3 bps to 4.40%
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News:
- There was growing speculation that the Bank of England will not raise its bank rate tomorrow.
- China exported no gallium nor germanium in August, according to customs data.
- China's Transport Ministry announced that international cruise arrivals and departures will be fully resumed.
- There was some speculation that the Reserve Bank of India intervened in the foreign exchange market to stop the rupee from continuing to a fresh record low against the dollar.
- Standard & Poor's affirmed Australia's AAA rating with a Stable outlook.
- Japan's August trade deficit reached JPY560 bln, as expected (last deficit of JPY600 bln) as imports fell 17.8% yr/yr (expected -19.4%; last -13.6%) and exports decreased 0.8% yr/yr (expected -1.7%; last -0.3%).
- South Korea's August PPI was up 0.9% m/m (last 0.3%), rising 1.0% yr/yr (last -0.3%).
- Australia's August MI Leading Index was unchanged m/m (last 0.0%).
- New Zealand's Q2 Current Account deficit reached 7.5% of GDP (last 8.5% of GDP).
- Eurozone's July Construction Output rose 0.8% m/m (last -1.2%).
- Germany's August PPI was up 0.3% m/m (expected 0.2%; last -1.1%) but down 12.6% yr/yr, as expected (last -6.0%).
- U.K.'s August CPI was up 0.3% m/m (expected 0.7%; last -0.4%), rising 6.7% yr/yr (expected 7.0%; last 6.8%). Core CPI was up 0.1% m/m (expected 0.6%; last 0.3%), rising 6.2% yr/yr (expected 6.8%; last 6.9%) Input PPI was up 0.4% m/m (expected 0.2%; last -0.4%) and Output PPI was up 0.2% m/m (expected 0.1%; last 0.2%).
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Today'sData:
- The weekly MBA Mortgage Index rose 5.4% to follow last week's 0.8% decrease. The Purchase Index was up 2.3% while the Refinance Index rose 13.2%.
- Weekly crude oil inventories decreased by 2.135 mln barrels after increasing by 3.954 mln barrels a week ago.
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Commodities:
- WTI crude: -0.8% to $89.75/bbl
- Gold: +0.8% to $1968.50/ozt
- Copper: +0.5% to $3.77/lb
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Currencies:
- EUR/USD: UNCH at 1.0681
- GBP/USD: -0.3% to 1.2355
- USD/CNH: UNCH at 7.3012
- USD/JPY: +0.2% to 148.03
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TheAhead:Day
- 8:30 ET: Weekly Initial Claims ( consensus 225,00; prior 220,000), Continuing Claims (prior 1.688 mln), Q2 Current Account Balance ( consensus -$222.0 bln; prior -$219.3 bln), and September Philadelphia Fed Survey (consensus -2.0; prior 12.0)
- 10:00 ET: August Existing Home Sales ( consensus 4.10 mln; prior 4.07 mln) and August Leading Indicators (consensus -0.4%; prior -0.4%)
- 10:30 ET: Weekly natural gas inventories (prior +57 bcf)