AUSSIE BONDS: Not far off the close here on the SFE and it's been a dull day for one which held the quarterly GDP data, and a speech by RBA Governor Stevens. Looks set for a week of that (unless the ECB stir the pot) until Employment data for November due up on Dec 10th, a week from tomorrow (Retail Sales on Friday may also be worth a watch, as will the NAB Business Survey next Tuesday which continues to get elevated in the economic indicator stakes). A decent clip buyer off the new lows in Mar'16 bills has faded away but pressure remains on the Feb'16 Interbanks which at 98.045 represent a 19.3% chance of a rate cut at the RBA's next meeting, an SOMP meeting no less. Curve has stabilised under the lack of enthusiasm as has the Aus/US 10yr, but traders still looking for entry points for both flatteners.
AUSSIE BONDS: No real reaction to RBA Governor Stevens' speech or Q&A with bonds taking a small leg down on the Q3 GDP and nothing more. In the Q&A he mentioned the +0.9% qoq was a touch above that embodied in the published forecast and that was "welcomed", but had earlier said the +2.5% yoy was slightly below the long run average, but not by much. Asked about the RMB being added to the IMF's SDR, said it didn't have much ramification for capital flows. Suggested that rates were already "very low" and that perhaps other policy tools would be necessary if there was indeed a bout of deflation but still kept the fact that rate cuts can be used "if needed" as has been in the last two RBA statements. Avoided commentary about property prices except to say APRA was being effective, and said inflation is expected to be in the band for the next 2-3 years. He also said that the employment data had strong "over the past year". Still, the major mover has been curve which has continued to flatten, 3s/10s into 72.0 offered and selling of Feb'16 Interbanks continues as traders take more out of rate cut expectations for early next year but that's expected to run into a natural bid soon with 9 weeks between now and then.
AUSSIE BONDS: Aussie bonds just gleaning through the RBA Governor Stevens' speech ahead of Q&A, and seeing a stronger than expected Q3 GDP number at +0.9% and +2.5% yoy. Stevens in his speech said that the yoy is not a bad outcome. Speech is somewhat sanguine about growth, or perhaps best termed as "chilled". That saw bonds dip lower but straight into a bid, the best flow has been selling curve instead. No major flow yet but will surely flatten up Aus/US 10yr. EFPs slightly flatter as well. Demand slipping out of bills as short cover dries up. Q&A yet to come.
US TSY FUTURES: Treasury futures have seen very little reaction to the stronger-than-expected Australian GDP data, with the market already trading at its session lows prior to the release. Currently 10yr futures are down 6-ticks from the close with the market seeing robust volumes of close to 25.5k trade. The subsequent sell-off in treasuries has seen the Aussie/US 10yr spread compress around ~2bp to last trade at 66.6bp, with Aussie bonds have remaining relatively stable as the expectations for a stronger GDP result appear to have been factored in. The next support for 10yr futures is seen at 126-24, while the overnight high at 127-025 should prove stern resistance.
SOUTH KOREA: The current account surplus came to $8.96 billion in October, compared with a revised $10.54 billion surplus in September, Yonhap News reports citing data from the Bank of Korea. The October figure, however, marked a slight increase from a surplus of $8.74 billion posted in the same month last year. The on-month drop was partly attributed to a rise in imports, which surged 10.54% from the previous month to $36.7 billion, outpacing a 4.86% gain in exports.
US TSY FUTURES: Treasury futures have given back some of their post 3pm gains at the open on Wednesday. Ten-year futures are currently down 2.5-ticks from the close, with today's Asian session providing plenty of event risk. First off, Australia's Q3 growth data is due in less than 75-minutes time, with MNI's current median consensus stands at 0.7% q/q growth and 2.3% y/y. The Aussie/US 10yr spread will be a focus here, with some looking for the opportunity to reset flatteners, with the spread last trading around the 69bp level. Then 30-minutes after that that the Fed's Lael Brainard delivers a speech on the Lower Neutral Rate, though no real market impact is to be expected as the market remains fixated on the ECB and payrolls on Thursday and Friday respectively. As for today support for Mar'16 10yr futures arrives at 126-24 and then 124-21, while resistance is seen at 127-09.
AUSSIE BONDS: A fairly slow start to the Q3 GDP day with 10s hitting levels seen just before the October US Employment data, ahead of the November numbers due this Friday. Curve selling continued overnight with the contract into 72.5 but seeing some cover this morning. The market is generally sidelined with RBA Governor Stevens speaking later in Perth (1110 AEDT, 0010 GMT). Some weak data out of the US overnight in the ISM Manufacturing PMI for November missing well to the downside has traders starting to wonder how the Fed can raise rates but missing the point that employment has improved and these types of series are not exactly reliable given the disparity between large and small companies is not well captured. Elsewhere not much going on until Stevens and GDP.
LOOK AHEAD: First up, RBA Governor Glenn Stevens is due to speak at 1030 Sydney time (2330 GMT) at a breakfast event in Perth on the topic "Economic Conditions and Prospects". While Stevens is expected to once again reiterate positive narrative on the economy, any views on China and offshore risks need to be closely watched. Later in the morning is GDP data for Q3. Then at 1130 (0030 GMT), Australia's Q3 GDP data are due. MNI current median consensus stands at 0.7% q/q growth and 2.3% y/y but this could be revised There's little other top-tier data elsewhere to inspire the market. In JAPAN, at 1400 in Tokyo (0500 GMT), the Bank of Japan will release October measures of underlying inflation: CPI mode, weighted median. In order to see a clearer trend without the effects of what it considers a temporary slump in energy costs, the BOJ is now releasing other core price data every month.
DUE UP: Key upcoming events in the Asia-Pacific in next few sessions: (AU=Australia, JN=Japan, CH=China, NZ=New Zealand, SK=South Korea, TH=Thailand, IN=India, ID=Indonesia) - Dec 2 SK BoP Current Account Balance (Oct) - Dec 2 JN Monetary Base (Nov) - Dec 2 AU AOFM to sell A$900 mln 4.25% Apr 21, '26 Bonds - Dec 2 AU RBA Governor Stevens Speech in Perth - Dec 2 AU GDP (Q3) - Dec 2 CH China to sell CNY28 bln 3.14% Sep 8, '20 Bonds - Dec 3 SK Foreign Reserves (Nov) - Dec 3 AU AiG Performance of Services Index (Nov) - Dec 3 SK GDP (Q3, f) - Dec 3 AU AOFM to sell A$500 mln Apr 22, '16 T-notes - Dec 3 AU HIA New Home Sales (Oct) - Dec 3 AU Trade Balance (Oct) - Dec 3 JN Nikkei PMI Services (Oct)
US TSYS SUMMARY: Pt II: 1) Tsys traders eyed MNI poll median estimate for Friday key 8:30am ET Nov US jobs: +200K Nov. jobs, 195K private payrolls, 5% unemploymt rate, 34.5 avg hrly workweek and 0.2% Avrg Hrly Earnings gain; 2) US swaps ended Tues at/near session wides, see 3:06pm ET details; 3) Eurodolr future end higher/off highs as Greens, Blues outpeform see 3:14pm ET bullet; - Treasuries ended higher on 3:00 pm Tues from 3:00 pm Mon basis: - 2-year note ended at 0.907% (99-30) from 0.934% (99-282) - 3-year ended at 1.185% (100-06) from 1.226% (100-022) - 5-year ended at 1.596% (100-04+) from 1.656% (99-272) - 7-year ended at 1.935% (100-13+) from 1.998% (100-00+) - 10-year ended at 2.155% (100-27) from 2.220% (100-08+) - 30-year ended at 2.917% (101-20+) from 2.990% (100-06) - The 2/5Y curve flattened to +68.9 bps from +72.2 bps - The 2/10Y curve flattened to +124.8 bps from +128.6 bps - The 2/30Y curve flattened to +201 bps from +205.6 bps - The 5/30Y curve flattened to +132.1 bps from +133.4 bps
US TSY FUTURES CLOSE: Prices end sharply higher on consistent real money, which sparked technically based buying and eventual short cover: Mar Ultra bonds closed up 2-04/32 at 160-18 with 99K traded Mar 30Y bonds were up 1-27/32 at 155-27 with 240K traded Mar 10Y notes were up 16.5/32 at 126-30.5 with 1.1M traded Mar 5Y note were up 10.25/32 at 119-00 with 588K traded Mar 2Y note were higher by 2/32 at 108-26.75 with 218K changing hands.
US TSYS SUMMARY: Treasuries ended Tues higher amid 1)Weak 48.6 Nov US ISM Purchasing Mfrgs Index(least since 2009) and soft 52.8 Markit Nov Final index 2) Tsys safe-haven bid on brief UK/Ldn Bridge evacuation worry then worry on unconfirmed talk 2 Russian helicopters lost contact in Latakia near Turkey; 3) Traders cover Mon Tsys shorts on Tues NY morn 4) Russia/Turkey: talk Ankara blocks Russian ships' Black Sea passage; Russia said may redirect oil shipment from Blk Sea straits 5)High-grade corporate bond issuance busy 6) Tsys gain on German Bund strength, safe-haven 7) Jpn real money buying 10Y, Mar US Tsy Ultra Bd futures:post-month-end trade 8) US 10Y swaps receivers, bids hit in butterflies then surge in payer flow 9)Tsys aided as talk stks rebalanced pressured stks 10) Dealers, real money sold session highsin Mar 10Y Tsy futures; 11) Puerto Rico debt talks: Govt Devlpmt Bk for Puerto Rico said paid principal, int due on some GDB notes; PR gov signed exec order to redirect some revs 12) Mkt, mon pol jitters amid ECB mtg Thu, Fed Chr Yellen speeches this wk, Fri key Nov US jobs then potential mid-Dec FOMC mtg/25bp hike 13) MBS:very good real money buying before Tsy rally, then some real & fast money sold Tsys after(More)
EURO SUMMARY: *Euro NY Open Dec 1 $1.0600, O/N range $1.0563-1.0619, NY range $1.0598-1.0637 *The Euro traded at the daily lows early in the Asian session at $1.0563. From there the market headed higher making the European high at $1.0619 mid-session. *New York opened trading at $1.0600, right on the option expiry level. Apparently there are a lot of strikes at this level for the next few days, so it will be a pivot. *New York traded higher almost immediately, making the high of $1.0637 around 10:00 AM; ISM Manufacturing came in softer; US ISM PURCHASING MANAGERS INDEX 48.6 NOV VS 50.1 OCT. *In addition to Euro-Dollar buying, there was a fair amount of demand for Euro-Sterling as the UK manufacturing PMI was soft. This cross has been trading at or near its highs for most of the day; STG.7051 is the high so far. *The market will be looking at the EMU Nov flash HICP tomorrow for further direction. MNI has a median of +.2%. YoY. *Last Euro $1.0633
US OUTLOOK/OPINION: DB says for tomorrow's data, Q3 productivity will be revised higher in light of the upward revision to Q3 real GDP growth, now 2.1% versus 1.5% previously. However, the entire upward revision to GDP was due to more inventory building, so the economy will have to work off excess stockpiling in the current quarter. Higher productivity means unit labor costs should be revised down (+1.0% vs. +1.8%)."
US TSYS: /OVERNIGHT REPO: Wedbush mg. dir. Scott Skyrm said projecting the Treasury General Collateral for December "has a lot of moving parts, not only is there year-end, but there's also a probable Fed move. Though the markets are pricing about an 80% chance of a tightening on Dec. 16th, I'm calling for a 25 basis point tightening on Dec. 16th. In projecting GC rates, I am assuming that the new fed funds target range will not begin until Dec. 17th. In the past, the fed funds market often partially adjusted on the day of the FOMC announcement. Then, there are the two "wild card" issues: the "dark cash" and the Fed's ability to drain liquidity. Both the mystery cash and the Fed's tightening tools (Reverse-Repo Program and Term Deposit Facility) could stall overnight fed funds and overnight GC from moving into the midpoint of the new target range."
US TSYS: Treasuries continue to power upward today in price, 10-year note now at 2.148%. The 10-year yield thus has broke through the 2.157% 200-day moving average, and then 2.153% 55-day moving average, thus showing technical strength, said traders.
US OUTLOOK/OPINION: RBC's jobs preview says "ramp-up in holiday hiring plans will help boost payrolls back above the recent trend over the course of Q4. The October payroll read was a testament to this, with private jobs increasing by a sizeable 268K on the month. We think another north of 200k read is in the offing for November. Accordingly, the unemployment rate is likely to slip to the Fed's explicit full employment level of 4.9%."
OUTLOOK: Global Cal for Weds (GMT/ET) - 02-Dec 2330 / 1830* Australia RBA Gov Stevens speech in Perth 02-Dec 0030 / 1930* Australia Q3 GDP 02-Dec 0500 / 0000 Japan METI weekly gasoline prices 02-Dec - Germany Nov car registrations 02-Dec 0800 / 0300 Spain Nov unemployment 02-Dec 0930 / 0430 UK Nov CIPS/Markit Construction PMI 02-Dec 1000 / 0500 EMU Oct PPI 02-Dec 1000 / 0500 EMU Nov flash HICP
EUROZONE DATA: If anything could roil market expectations about ECB action Thursday, it would be Wednesday's release of flash EMU inflation data. Of the countries that have already released their flash data, Barclays Fabio Fois says "Italy and Germany saw downside surprises relative to our forecasts that were different in nature," which causes Barclays (BCS) to revise down their "headline inflation forecast for the euro area, while adding downside risks to our already below-consensus forecast for core inflation." Barclays (BCS) now looks for "headline inflation to average +0.2%, down from +0.3% previously expected, and core inflation to ease to +1.0% (as we expected before) from +1.1% in October." MNI has a median of +0.2% y-o-y for November flash HICP and a median of 1.1% for flash core CPI.
US TSYS: Treasuries see mild profit-taking at session highs after safe-haven and short-covering rally; US 10-year note is at 2.155%. Mkt also sees 2/30y, 2/30Y and 2/5Y curve flatteners, while 5/30Y now nearly unchanged on the day at +133.20 bps.
FED: Chicago Fed Pres Evans (FOMC voter this yr, dove) presents doves' case. He prefers "a later liftoff than many would like, followed by a very gradual normalization of our monetary policy" to a FF rate under 1% at end'16. Says US econ is close to labor mkt goals, but infl remains softer than goal due to low energy prices, soft China growth, EM problems. Another risk is having to reverse quickly the initial hikes, to easing again. Fed should communicate path for FF rate even if it hikes in Dec.
US TSYS: Traders eyed the weak 48.6 Nov. ISM data and Fed policy. "The weak ISM data came out, and some are questioning the path of future US rate hikes," said one trader. "I don't think anyone is questioning the next one. But if the Fed would hike with the ISM below 50, that would be interesting. However, the market is pricing in a much shallower hiking cycle: as opposed to 3 hikes per year, there might be two hikes per year after that first rate hike in mid-December." Thus the market will watch today's 12:45pm ET Chic Fed Evans words, and 8pm ET Fed Govt Brainard, and then Wed 12:25pm ET Fed Chr Yellen speech to Econ Club of Wash, then Thurs 10am ET testifying to Joint Economic Committee. Traders expect Yellen still most likely to steer mkt toward a 25-bps hike mid-Dec. "We should not be changing everything based on the one number, the ISM," said one veteran trader.
US DATA REACT: Barclays (BCS) says "October construction spending report keeps our outlook for construction activity broadly unchanged. Activity and investment in the housing sector continues to improve at a moderate rate, while business sector construction growth is modest."
US TSYS SUMMARY: US Treasuries held session high price midday Tues amid 1) Weak US econ data: 48.6 Nov ISM Purchasing Mfrgs Index (least since 2009), soft 52.8 Markit Nov. Final index 2) Tsys safe-haven bid on UK/Ldn Bridge evacuation worry then more worries on Russian helicopters losing contact in Latakia area near Turkey; 3) Tsys shorts cover in NY morning on shorts set Mon 4) Traders eye Russia/Turkey tensions amid talk that Ankara obstructing Russian ships' Black Sea passage; Russia said may redirect oil shipments from Black Sea straits 5) Investment grade corporate bond issuance busy after Monday's $10.85B 6) Tsys gained on German Bund strength, safe-haven bid 7) Tsys aided by Japanese real money buying 10Y, Mar Tsy Ultra Bond futures in post-month-end trade 8)US 10Y swap receivrs, bids hit in butterflies then surge in payer flows 9) Tsys aided on talk of stocks rebalancing, which pressured stocks; 10) Dealers, real money sold session highs in Mar 10Y Tsy futures; 11) Puerto Rico debt talks as a $354M bond payment due Tues; 12) Traders cite mkt, mon pol jitters amid ECB mtg Thu, Fed Chr Yellen speeches this wk, Fri 8:30am ET key Nov US jobs then potential mid-Dec FOMC meeting and 25 bps hike 13) MBS held in as Tsys rally
US MUNIS: Headlines about Puerto Rico stem in part from testimony today where Gov Padilla talked about emergency measures. The fate of bond payments due today remains in the air. See the testimony at http://www.judiciary.senate.gov/imo/media/doc/Garcia-Padilla%20Testimony.pdf
US DATA REACT: FTN notes Nov mfg ISM at 48.6 was at 2009 levels. JPM also notes multi-yr lows in mfg data, says "we continue to see signs that the stronger $, lower energy prices, and inventory correction are weighing."
US TSYS: Treasuries leaping higher still, 10-year note 2.166%, 2-year note 0.911%. Rep. of Indonesia appears to eye 4.85% zone on 2026 new debt and 6% on 2046s. Meanwhile, more flood of corporate bond issuance: Expedia (EXPE) 10Y, Georgia Power 3Y, Wisconsin Public Service $250M 3Y, Rogers Communications (RCIAF) $750M 10Y new bond and 2044 tap, Citi 3Y fixed/potential 3Y FRN, and Synchrony 3Y and/or 3Y and EDB 3Y green bond.
US DATA: Nov domestic auto sales looking disappointing in the totals, at almost 14m units SAAR vs 14.5m expected, and vs the 14.2m pace seen in October. Seasonal adjustment factors were more accommodative for November than last mo.
EGB SUMMARY: German government bonds are trading mixed into Tuesday close following two-way flow, with 2Y Schatz outperforming and hitting fresh record low of -0.4361%, as ECB Nowotny hints at easing. German 2s/30s is 2.8bp steeper. - Dec Bund future opened modestly lower amid bear-steepening in UST overnight and spiked lower after better than expected Spain mfg PMI data, with traders reporting stop loss selling with circa 15k stops hit from 157.94 to 157.76. - Further slide lower was seen in Bunds after German final mfg PMI came in marginally above flash estimate and unemployment falling to record low of 6.3%. - Overall EZ mfg PMI confirmed at 52.8, helped Dec Bunds pare losses on short-covering, but then saw another fade ahead of NY open. - Bunds reversed loses after soft Canada GDP and US ISM mfg data. Bunds also supported by safe-haven buying following bomb scares in London, and strong buying in Euribor contracts in wake of comments from ECB Nowotny that Central Bank will asses degree of accommodation at Dec 3 meeting. **German 2Y Schatz yield is 1.6bp lower at -0.435%, 5Y Bobl 1.9bp lower at -0.202%, 10Y Bund 1.1bp lower at 0.461%, 30Y Bund 1.1bp higher at 1.339%.
US DATA REACT: RBS says in ISM, "anecdotal bits of the report had a downbeat tone, with respondents citing global headwinds and low oil prices continuing to affect the outlook. Within the survey details showed just 5 of 18 industries reported expansion in November versus the report in October that cited 7 of the 18 industries reporting growth."
US DATA REACT: CS says "ISM Manufacturing headline index disappointed, printing at 48.6 in November, well below expectations of 50.5 and below the crucial 50 level. The all-important new orders index (the single best predictor of the headline ISM) fell 4 points, which may signal continued softness in the headline ISM in the months ahead."
US DATA REACT: HFE says +1% Oct construction was good. "The level of ex-improvements spending in Oct was up 12.0% at an annual rate from the Q3 average, up from the 9.1% pace in Q3 (revised from 8.2%)."
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