Markets April 3, 2019
UST 10s 100-30 (2.517%) off the 101-10+ (2.47%) close. We traded 102-14+ at the high on 3/27, a 2.34%, but that massive level is now a bridge too far.
· Strong Chinese manufacturing data over the weekend drove us down through 2.44%, and then a not weak Jan/Feb Retail Sales Monday got us to 2.50%.
· Then, last night, stronger than expected Chinese and especially EU services data (see below) drove us from 2.47% to 2.51%.
· That broke the Bund over zero for the first time since March 21 after trading -0.085%. that puts additional weight on USTs.
· ADP came in light at 129k (consensus 178k), but the up-tick got sold by the futures geeks.
· The market will either retake 2.44% or it will break 2.54% when the supply from the $73B April refunding of 3-year, 10-year, and 30-year securities gets here Tue-Thu next week and threaten a break to 2.63%. The data will determine which way we go, including Payrolls Friday.
· The challenge is, most of what has moved the market lately has happened overnight or the weekend. If you want to have any idea of what drives market prices at 8:00 AM NYT, you better be keeping some strange hours.
· The narrative of a weakening global economy, specifically the Chinese and the EU, leading to a weakening US economy takes another hit. It’s not unusual that the data turns. No one yet knows if that is what is happening- that we are preparing for a soft landing. What we do know is that Chinese and EU services data is stronger than expected even while manufacturing data softened at the end of last year.
· The constant message from the WH that a trade deal is near not only jacks the stocks but provides another negative theme for the bond market.
· Williams and Mester, both hawks, will be on the tape today: Williams at 1 and Mester at 4.
· The Chinese have initiated a multitude of stimulatory actions; maybe they can avoid a significant slowdown. That would complicate the Fed ease scenario now in the markets and priced into the UST curve.
· The market needs more fuel- weaker data, to go higher, Right now it needs to retake 2.44%. it’s harder now that bills through the 7-year are negative carry.
· The April mini refunding is announced tomorrow. The specter of supply is upon us.
Most Recent Closes of the UST 10-year
· Conclusion: It’s stalled, stuck, out of fuel. The narrative of slower growth gets damaged by Chinese manufacturing strength, offsetting services strength, and continued talk by the Fed that one more time is likely, vol will be with us for a while.
Two-day movement of the UST 10-year note
· We opened down hard this morning due to stronger services data from the EU.
· The ISM PMI at 10 was weaker than expected, holding it in so far (see far RHS).
· The global weakness narrative took a hit, but it’s not over. The market rarely lets loose of a powerful theme so easily.
· It could stay here- 2.63-2.35, for weeks or months.
Economic Data This Week
Today 815: ADP 129k (178k consensus).
Friday 8:30 Payrolls (est. consensus 180k).
Stronger than expected EU services data sent bonds down.
BN 04/03 08:00 *EURO-AREA MARCH SERVICES PMI 53.3; PRELIM 52.7
BN 04/03 08:00 *EURO-AREA MARCH COMPOSITE PMI 51.6; PRELIM 51.3
BN 04/03 07:55 *GERMANY MARCH COMPOSITE PMI 51.4; PRELIM 51.5
BN 04/03 07:55 *GERMANY MARCH SERVICES PMI 55.4; PRELIM 54.9
BN 04/03 07:50 *FRANCE MARCH COMPOSITE PMI 48.9; PRELIM 48.7
BN 04/03 07:50 *FRANCE MARCH SERVICES PMI 49.1; PRELIM 48.7
US Morning Data
ISM data, most important, was weaker, holding the market in so far.
The key is to hole 2.54% off of tonights 2.51% close. We doubt if we can retake 2.44%, the next level up, unless payrolls, estimated to be 180k Friday 830, is less than 100k. That supports the economic slowing narrative that is the reason we have gone from 3.23% to 2.34% (Wed. March 27) on the UST 10-year, though we have given back 17 bps in the last week.