Bond Market Update

Long End Lags Ahead of July PCE

• U.S. Treasuries are on track for a modestly lower start in longer tenors after they showed relative strength on Thursday. Treasury futures began dipping in early evening trade, reaching lows as the focus turned from action in Asia to Europe. However, some volatility is likely to follow the 8:30 ET release of the Personal Income/Outlays report for July, which will factor into rate expectations. The overnight session featured a barrage of data, including Japan's below-consensus Retail Sales (0.3%; expected 1.5%) and Industrial Production (-1.6%; expected -1.1%) for July and cooler-than-expected Tokyo CPI for August (2.6%; expected 2.9%). In Europe, flash August CPI readings from France (0.4%; expected 0.5%), Italy (0.1%; expected 0.2%), and Spain (0.0%; expected 0.1%) were cooler than expected while Germany's CPI report was slightly hotter than expected (0.1%; expected 0.0%). Crude oil holds a modest loss while the U.S. Dollar Index is up 0.2% at 98.01.
• Yield Check:
  • 2-yr: UNCH at 3.64%
  • 3-yr: +1 bp to 3.60%
  • 5-yr: +1 bp to 3.71%
  • 10-yr: +2 bps to 4.23%
  • 30-yr: +3 bps to 4.90%

• News:
  • FHFA Director Pulte has submitted a second criminal referral against Fed Governor Cook, who allegedly categorized an investment property as a second home.
  • Fed Governor Waller spoke last evening, voicing his support for a 25-basis point rate cut in September, adding that he would not support a larger cut unless the August jobs report shows a significant deterioration in the labor market.
  • South Korea's government will issue bonds to pay for its largest budget increase in four years.
  • China Securities Daily warned against speculation on risky stocks under "special treatment" or "probationary" status due to their risk of being delisted.
  • German Chancellor Merz said that there will be no meeting between presidents of Ukraine and Russia.
  • FT reported that British Chancellor Reeves is considering a surcharge on bank profits or a new bank levy to plug a GBP20 bln budget gap.
  • Japan's July Retail Sales rose 0.3% yr/yr (expected 1.5%; last 1.9%), July Industrial Production was down 1.6% m/m (expected -1.1%; last 2.1%), July jobs/applications ratio remained at 1.22 (expected 1.23), July Unemployment Rate fell to 2.3% from 2.5% (expected 2.5%), July Housing Starts were down 9.7% yr/yr (expected -9.9%; last -15.6%), July Construction Orders fell 19.0% yr/yr (last 22.5%). August Tokyo CPI was up 2.6% yr/yr (last 2.9%) and Tokyo Core CPI was up 2.5%, as expected (last 2.9%). August Household Confidence rose to 34.9 from 33.7 (expected 34.2).
  • South Korea's July Industrial Production was up 0.3% m/m (expected 0.4%; last 1.7%), rising 5.0% yr/yr (expected 3.5%; last 1.6%). July Retail Sales were up 2.5% m/m (last 0.7%). July Service Sector Output rose 0.2% m/m (last 0.5%).
  • Singapore's July Bank Lending reached SGD854.0 bln (last SGD853.3 bln).
  • India's Q1 GDP expanded 7.8% yr/yr (expected 6.6%; last 7.4%).
  • Australia's July Private Sector Credit was up 0.7% m/m (expected 0.6%; last 0.6%) and Housing Credit was up 0.5% m/m (last 0.5%).
  • Germany's July Import Price Index was down 0.4% m/m (expected -0.3%; last 0.0%), falling 1.4% yr/yr (expected -1.2%; last -1.4%). July Retail Sales were down 1.5% m/m (expected 0.0%; last 1.0%) but up 1.9% yr/yr (expected 2.6%; last 2.4%). August Unemployment decreased by 9,000 (expected 10,000; last 2,000) and Unemployment Rate remained at 6.3%, as expected. Flash August CPI was up 0.1% m/m (expected 0.0%; last 0.3%), rising 2.2% yr/yr (expected 2.1%; last 2.0%).
  • France's flash August CPI was up 0.4% m/m (expected 0.5%; last 0.2%), rising 0.9% yr/yr (expected 1.0%; last 1.0%). Q2 GDP expanded 0.3% qtr/qtr, as expected (last 0.1%), growing 0.8% yr/yr (expected 0.7%; last 0.6%). Q2 nonfarm payrolls were up 0.2% qtr/qtr (expected 0.0%; last -0.1%). July PPI was up 0.4% m/m (last -0.1%), rising 0.4% yr/yr (last 0.3%). July Consumer Spending was down 0.3% m/m, as expected (last 0.4%).
  • Italy's Q2 GDP contracted 0.1% qtr/qtr, as expected (last 0.3%) but was up 0.4% yr/yr, as expected (last 0.7%). August CPI was up 0.1% m/m (expected 0.2%; last 0.4%), rising 1.6% yr/yr (expected 1.7%; last 1.7%).
  • Spain's flash August CPI was unchanged m/m (expected 0.1%; last -0.1%), rising 2.7% yr/yr (expected 2.8%; last 2.7%). July Retail Sales were up 4.7% yr/yr (last 6.2%).
• Commodities:
  • WTI Crude: -0.4% to $64.35/bbl
  • Gold: -0.1% to $3469.70/ozt
  • Copper: +0.9% to $4.582/lb
• Currencies:
  • EUR/USD: -0.1% to 1.1664
  • GBP/USD: -0.4% to 1.3453
  • USD/CNH: +0.2% to 7.1309
  • USD/JPY: +0.2% to 147.26
• Data out Today:
  • 8:30 ET: July Personal Income (Briefing.com consensus 0.4%; prior 0.3%), Personal Spending (Briefing.com consensus 0.5%; prior 0.3%), PCE Prices (Briefing.com consensus 0.2%; prior 0.3%), Core PCE Prices (Briefing.com consensus 0.3%; prior 0.3%), July advance international goods trade (prior -$96.4 bln), July advance Retail Inventories (prior 0.3%), and July advance Wholesale Inventories (prior 0.2%)
  • 9:45 ET: August Chicago PMI (Briefing.com consensus 46.0; prior 47.1)
  • 10:00 ET: Final August University of Michigan Consumer Sentiment (Briefing.com consensus 58.6; prior 58.6)