Treasury Market Preview by Trade the News Staff - In focus today are the releases of CPI for Dec., Initial Jobless Claims and Continuing Claims as well as Housing Starts and Building Permits for Dec. and the Philly Fed Index for Jan. CPI is expected to have risen 0.4%, while CPI ex-food and energy is seen up 0.2%. Jobless Claims are expected to be 314K and Continuing Claims are seen rising to 2.438M from 2.428M. Housing Starts are expected to have fallen to 1.565M from 1.588M and Building Permits to have declined to 1.505M from 1.513M. Finally, the Philly Fed Index is seen rising to +3.1 from -2.3. In Fed speak, Bernanke will testify before the Senate Budget Committee at 10:00 a.m. Bies speaks later at 7:15 p.m. on the economic outlook. - Fed Poole spoke after the close last night on the economic outlook. He said that the Fed is well position on rates, though he does not now which way rates will move next. Additionally, Poole said that he sees GDP growth this year between 2.5% and 3.0%. As for inflation, he commented that it is still on the high side and would like to see it between 1 and 2%. Finally, on housing, Poole said that he is unsure whether the housing market has bottomed out and is wary of further weakness. - The WSJ wrote today that with crude prices retreating, oil producers will have less wealth to spread around the world. Consequently, this should mean lower energy prices and lower inflation, but not necessarily a drop in interest rates because less petrodollars from oil producing countries will go into foreign financial assets such as U.S. Treasuries. - In new supply, the Treasury will be announcing today the amount of a 20Y Tips auction scheduled for next week on the 23rd. In corporate supply, Bear Stearns will sell 5Y senior notes as soon as today. The notes will be a mix of floaters and fixed notes. - In European economic news, the French current account deficit narrowed more than expected in Nov. to EUR2.964B from EUR4.918B. In Germany, the HWWI research institute increased its 2007 GDP forecast for Germany to 1.7% from 1.1%. This follows news yesterday that the German government will increase its growth view to above 1.4%. Elsewhere, the ECB released its montly report for January. It was largely unchanged from the December report with the ECB reiterating that monetary policy remains accommodative and that the risks to the CPI outlook are on the upside, echoing Trichet's remarks from his news conference following the ECB's last rate announcment. In other European economic news, BOE MPC member, Besley, commented that the strength in the U.K. services sector may push wages higher because of a shortage of skilled labor and that services is probably fueling inflation. Besley added that the BOE minutes, which will be released on January 24th, will show concern on upside risks for CPI. - In Japan, the BOJ decided to leave its overnight rate unchanged at 0.25%. Interestingly, the vote was split 6-3. In its accompanying report, the BOJ left its assessment for the economy unchanged, noting that CPI is weaker than forecasted in October. BOJ Governor, Fukui, reiterated overnight that there is no pre-determined timing for interest rte hikes and that acknowledged that recent economic data has been mixed. - At 8:10 the 30Y futures is down 3 ticks at 110 15/32, the 10Y future is down 1 ½ ticks at 106 30/32 and the 2Y future is down ½ tick at 101 26/32.
Treasury Market Preview by Trade the News Staff - On the U.S. calendar there is one release today - the preliminary reading of the University of the Michigan Confidence Index for Jan. The index is seen rising to 92 from 91.7. In Fed speak, Rosenblum is speaking on the economic outlook in Dallas at 12:30 p.m. Hoening discusses the economic outlook at 1:15 p.m. - After the close yesterday, Fed's Bies said that recent readings on inflation have been favorable, but upside risks to prices remain until there is a confirmation of the trend. She added that inflation seems poised to decelerate in the coming months in view of the fall in energy prices, but the decline is not assured. Furthermore, Bies said that the weakness in the housing sector does not appeared to have spread to other areas of the economy and that outside of housing the economy is solid. - Fed's Lacker said this monring that inflation remains the pre-dominant risk to policy and that several months are needed for the trend in inflation to be confirmed. He sees GDP growth this year between 2.5 and 2.75%, though cautioned that housing will be a drag on growth in the 1st half. With respect to the labor market, he commented that it is to stay tight and that wage gains are solid, but wage growth is not necessarily inflationary. - The Financial Times reported today in regards to Iran that the departing Saudi Ambassador to the U.S., Prince Turki, told the New America Foundation think-tank yesterday that the latest military moves by the U.S. in the Persian Gulf, including the dispatch of a second aircraft carrier group and Patriot air defense missiles to the Gulf, were intended more as a loud demonstration to Iran that the U.S. was not retreating from the region. Additionally, he said that Iran's response to the U.S. seizure of five Iranian officials in Abril had been judicious. U.S. Secretary of Defense, Gates, reiterated yesterday in Bahrain that 'nobody wants another conflict in the reason and that there are many course of action available that do not involve conflict. - In European economic news, retail sales in the U.K. rose 1.1% in Dec., exceeding estimates of 0.6%. The rise was the largest recorded in eighteen months. Also in the U.K, BOE MPC member, Bean, said that the BOE may have to send a letter to the Chancellor of the Exchequer, Brown, explaining why CPI in the U.K. is above 3.0%. He also said that growth has been unusually stable and inflation expectations are well anchored. Elsewhere, ECB official, Stark, commented that he sees inflation low both in the euro region and globally. He said that the markets understood well ECB chief, Trichet's, message at the last meeting. - At 8:10 a.m. the 30Y future is up 5 ticks at 111 3/32, the 10Y future is up 2 ½ ticks at 107 8/32 and the 2Y future is up 1 tick at 101 28/32.
Treasury Market Preview by Trade the News Staff - On the U.S. calendar today at 10:00 a.m. is the release of Leading Indicators for Dec. Leading Indicators are expected to have risen 0.2%. In Fed speak, Yellen is speaking on the U.S. economy this afternoon at 3:20 p.m. Looking ahead to the rest of the week, the Richmond Fed Index for January is due out tomorrow. On Thursday, we have Existing Home Sales for Dec. And on Friday, Durable Goods Orders for Dec. and New Home Sales for Dec. will be released. Other events to look out for this week is President Bush's State of the Union speech tomorrow night and the World Economic Forum in Davos, Switzerland, which kicks off on Wednesday. - The Financial Times reported today that the Chinese Premier, Wen Jiabao, said over the weekend that Beijing should improve the management of its foreign exchange reserves and diversify the channels though which they are invested. Wen did not endorse any specific plan but has indicated that the government will consider proposals on how to use the $1 trillion in reserves, which are mostly invested in U.S. Treasury bonds, more aggressively. - A major wire pointed out today that OPEC members are selling Treasuries at the fastest pace in more than three years. Accoring to Treasury data, Indonesia, Saudi Arabia and Venezuela sold 9.4% or $10.1B of their U.S. government debt in the three months to November as crude prices have fallen 34% since their July peak. - In terms of supply, the Treasury will announce today at 11:00 a.m. the amount of 2 and 5 year note auctions. Analysts expect the Treasury to sell $13B in 5 year notes an $19B in 2 year notes. - The CFTC reported late last Friday that futures only positions in the 10Y future moved less long last week to 289,357 contracts from 301,405. Futures only position in the 30Y moved more short to -66,995 from -52,667. - At 8:15 a.m. the 30Y future is down 1 tick at 110 24/32 and the 10Y future is lower by 1/2 tick at 107 1/32.
Treasury Market Preview by Trade the News Staff - In focus today are the releases of Leading Indicators for Dec. and the Richmond Fed Index for Jan. Leading Indicators are expected to rise 0.2% and the Richmond Fed Index is seen climbing to 4 from -6. No Fed officials are speaking today. In pre-market releases, the UBS weekly chain store index rose 0.1% in the week ending Jan. 20. As a reminder, President Bush gives his State of the Union speech tonight. He is expected to focus on energy, health care and the War in Iraq. - A major wire wrote today that if oil continues to decline, resulting in dwindling petroldollar surpluses, the job of sustaining U.S. consumption will fall squarely on Asian central banks. The dilemma that Asian central banks face is if they continue to buy U.S. Treasury bonds, they may sustain large losses on their balance sheets if the dollar eventually collapses, and if they stop purchases of U.S. debt, the dollar may decline anyway. - Arab Times wrote today that the U.S. is to attack Iran by April. According to the Editor-in-Chief of the paper, the attack will be lauched from the sea and Patriot missiles will guard oil producing countries in the region. A source cited by the paper said that President Bush met recently with top staff in the White House where the plan was discussed in minute detail. - In new supply, the Treasury will be selling $8B of 20Y tips today at 1:00 p.m. - In European economic news, French consumer spending rose 1.3% in Dec, the most since March of 2000. In the Euro-zone, Industrial New Orders climbed 1.4% in Nov, exceeding expecations of 1.1%. Elsewhere, ECB's Draghi reiterated overnight that monetary policy is accommodative and that the ECB's strategy has not changed with the current tightening policy remaining intact. - At 8:10 a.m. the 30Y is up 1 tick at 110 31/32, the 10Y future is up 1 ½ ticks at 107 6/32 and the 2Y future is up 1 tick at 101 27/32.
Treasury Market Preview by Trade the News Staff - On the U.S. calendar there was one release - MBA Mortgage Applications. Mortgage applications fell 8.4% last week after having declined 0.6% in the prior week. No Fed-speak is scheduled for today. Tomorrow we have Existing Home Sales for Dec, which are expected to have fallen to 6.25M from 6.28M. - In new supply, the Treasury will sell $20B in 2Y notes today and $13B in 5Y notes tomorrow. Yesterday's $8B 20Y TIPS auction is said to have been decent, with both the bid-to-cover and indirect bid coming in above average. - In European economic news, the Bank of England released the minutes of its Jan. meeting. The MPC voted 5-4 to raise the benchmark rate to 5.25%. Analysts had expected the vote to be around 7-2. The minutes revealed that the majority of MPC members saw little chance of a sharp slowdown in growth if rates were hiked and believed that the hike might prevent a larger rise later. Additionally, the majority thought that CPI would not fall back quickly. The minority of members said that inflation would likely fall in 2007. On the news, Gilts gained and the pound weakened against the dollar. Also in the U.K., advanced Q4 GDP was 0.8% above expectations of 0.7%. Elsewhere, according to a draft paper, the German government sees growth this year at 1.7%. Finally, the German EUR 5B 30Y bund auction is said to have met poor demand. It covered 1.2 times, the weakest on record and below the bid-to-cover of the last auction of 1.52. - At 8:15 a.m the 30Y future is up 3 ticks at 110 16/32, the 10Y future is higher by 2 ticks at 106 30/32 and the 2Y future is up ½ tick at 101 25/32.
Treasury Market Preview by Trade the News Staff - In focus today are the releases of Durable Goods Orders for Dec. and New Homes Sales for Dec. Durable Goods Orders are expected to have risen 3.0%, while New Homes Sales are seen rising slightly to 1.052M from 1.047M. With respect to the Durable Goods data, analysts say that a spike in aircraft orders at Boening in December is responsible for the widespread expectations of a rise in durables, with aircraft seen adding more than four percentage points. - WSJ Fed Watcher, Greg Ip, wrote today that surprsingly solid economic growth hasn't only persuaded investors that the Fed won't cut interest rates, it also has prompted some to predict that an overheating economy will trigger rate increases before long. However, Fed officials do not appear to share the view yet, as they believe the downturn in housing has yet to show its full impact on the economy, and officials are more comfortable with inflation than they were two months ago. Still, Ip says that the Fed at its policy meeting next Wednesday is like to reaffirm its bias toward raising rates than lowering them, citing inflation concerns, as some Fed officials believe inflation is still unacceptably high and that the job market is stronger than expected. - In European releases, M3 money supply in the Euro-zone rose 9.7% yoy in Dec., above expectations of 9.2%. While the headline number was higher than expected, there was slowing momentum in both corporate and household credit. Elsewhere, ECB's Weber commented that despite the decline in the Dec. IFO Index, Germany's economy is still strong and cited the m3 data in saying that internal pressures are building. He sees inflation in the Euro region above 2.0%. - In Japan, CPI data was released last night. Dec. headline CPI came in flat at 0.0%, matching expectations, while core CPI (ex-fresh food) fell 0.1%, below expectations of no change. An analyst at Lehman Brothers, Hiroshi Shiraishi, said of the data that it does not take a rate decision off the table, but it will make it more difficult for the BOJ to explain the need for a hike. He added if the Feb. GDP data is decent with solid consumption numbers, the BOJ could decide to move. - At 8:10 a.m. the 30Y future is down 9 ticks at 109 14/32, the 10Y future is down 5 ticks at 106 11/32 and the 2Y future is off 1 tick at 101 22/32.
Treasury Market Preview by Trade the News Staff - No releases are scheduled in the U.S. today and there are no Fed speakers. Tomorrow Consumer Confidence for Jan. is due out. On Wednesday GDP, the GDP Price Index and the Employment Cost Index for Q4 will be released. Also on Wednesday, we have Construction Spending for Dec., Chicago PMI for Jan. and the FOMC rate decision. On Thursday, Personal Income and Spending, the PCE Deflator and Core PCE as well as the ISM Index, all for Jan. are due out. And on Friday, the January employment report and Dec. Factory Orders will be released. - Regarding the FOMC decision on Wednesday, all 22 primary dealers are calling for not rate change and most economists do not expect a change in the FOMC statement. Economists at Lehman Brothers said that they expect the FOMC to note the cooling in the housing sector but with signs of stabilization. Lehman adds that the Fed should keep its anti-inflation stance. Economists are Bear Stearns said there might be an upgrade to the language on growth. - The CFTC reported late last week that futures only positions in the 10Y moved more long last week to 294,701 contracts from 289,357 contracts. Short positions in the 30Y moved more short to 69,283 contracts from 66,995 contracts. - In new supply, the Treasury announces its quarterly refunding tomorrow on 3Y, 10Y and 30Y debt. - In European economic news, the Confederation of British Industry's monthly survey of U.K. retailers showed that retail sales volumes hit their highest level in over two years in Jan. with the sales volume balance rising to +30% from +20%. Elsehwere, ECB's Liebscher sees 2007 growth robust and perhaps above potential. Bundesbank's Remsperger said in an interview with the FT over the weekend that the German upswing in 2006 was not a one-year wonder and that the chances are good that the upward movement will continue beyond the current year and into 2008. - At 8:10 the 30Y future is up 4 ticks at 109 21/32, the 10Y future is up 2 ticks at 106 16/32 and the 2Y future is up 1/2 tick at 101 23/32
Treasury Market Preview by Trade the News - On the U.S. calendar today are two releases, the S&P Home Price Index for Nov. at 9:00 a.m. and Consumer Confidence for Jan at 10:00 a.m. Consumer Confidence is seen rising to 110.0 from 109.0. No Fed speak is scheduled for today. In pre-market releases, ICSC-UBS's weekly chain store index fell 0.9% in the latest week. - The FOMC begins its two-day policy meeting today. Ahead of the rate decision tomorrow, the FT writes that even though economic data has come in much stronger than most investors were expecting since the last Fed meeting, the Fed is likely to remain on hold as economic activity has come less of a surprise to the Fed. The FT says that the change in market prices in relation to the bond market since early December alone is roughly equal to 1 ½ Fed rises, and because of that the Fed will want to see how the economy copes - Pimco's Gross has released his monthly analysis piece. He writes that bond, stock, and real estate trends have recently been increasingly at the mercy of levered financial flows as opposed to historical models of value or the growth of the real economy. Correspondingly, he says that the risk markets (including bond term premiums) are not walking a straight line and that stocks, credit spreads, and intermediate and long term bonds relative to steady Fed Funds rate in the first half may stagger shortly. - Tomorrow the Treasury announces its quarterly refunding. Yesterday the Treasury announced borrowing needs of $140B for Q1, above the $130B that some analysts had been expecting. - In European releases, nationwide house prices in the U.K. rose 0.3% in Jan., below estimates of +0.8%. In Germany, state CPI data for January showed that inflation slowed in Germany from December. In Switzerland, retail sales rose 2.5% in Dec., exceeding expectations of 0.9%. Elsewhere, a French minister says that European officials discussed whether the yen reflects fundamentals, adding that the yen should reflect strength of the Japanese economy. Late yesterday, the Chairman of the Eurogroup of Finance Ministers, Juncker, said that the European delegation at the G7 will say that low Japanese rates threaten possible disorderly adjustment of global imbalances. - At8:15 a.m. the 30Y future is up 1 tick at 109 14/32, the 10Y future is rising 1 tick to 106 13/32 and the 2Y future is up 1 tick at 101 23/32.
Treasury Market Preview by Trade the News Staff - On the U.S. calendar today are the releases of the ADP Employment report at 8:15 a.m., GDP, the GDP Price Index, Core PCE and the Employment Cost Index, all for Q4, at 8:30 a.m. Later at 9:45 a.m. we have the Chicago Purchasing Manager for Jan and at 10:00 a.m. Contruction Spending for Dec. Finally, at 2:15 p.m. the FOMC announces its rate decision. In pre-market releases, MBA mortgage applications rose 3.2% in the latest week after having declined 8.4% last week. The Hudson Employment Index rose to 104.2 in Jan. from 102.7 in Dec. - Regarding the FOMC statement, analysts at UBS wrote in a morning note to clients that any deviation from unchanged from the last FOMC statement would be a market moving event. - The Treasury makes its quarterly refunding announcement at 9:00 a.m. Analysts say that this quarter's refunding package is uncertain. The 10Y note is likely to be unchanged at $13B, but there are questions about the size of the each of the other two legs of the refunding operation. Regarding the 3Y note, analysts see a further reduction to $18B as possible. As for the 10Y note, the Treasury is unlikely to tamper with its primary benchmark issue. Analysts are looking for a $10B offering for the 30Y. - Treasury Secretary Paulson speaks today about the Treasury's currency report at 10:00 a.m. to the Senate Banking Panel. Yesterday, Senator Dodd said that Paulson must defend the Treasury's decision not to label China as a currency manipulator. He added that he expects an intense discussion on China's FX regime. - In European releases, the German unemployment rate fell to 9.5% in January, below expectations of 9.7%. The unemployment change in Germany was - 106K, below expectations of -40K. German retail sales rose more than expected in Dec by 2.4%, the largest increase since June 2004. In the U.K., GFK Consumer Confidence fell unexpectedly to -7 in Jan. from -8 in Dec. In Switzerland, KOF leading indicators came in at 1.71, above estimates of 1.54. Finally, in the Euro-zone, CPI fell to 1.9% yoy in January, below expectations of 2.1%. - At 8:10 a.m. the 30Y future is up 1 tick at 109 17/32, the 10Y future is up ½ tick at 106 15/32 and the 2Y future is up ¼ tick at 101 23/32.