Treasury Market Preview

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Treasury Market Preview by Trade the News Staff

- In focus today are the releases of Non-Farm Payrolls, the Unemployment Rate, Average Hourly Earnings, Manufacturing Payrolls and Average Weekly Hours, all for Dec. Non-Farm Payrolls are expected to show a gain of 100,000, the unemployment rate to have remain unchanged at 4.5%, Hourly Earnings to have risen 0.3%, Manufacturing Payrolls to show a decline of 15K and Weekly Hours to be 33.9. In Fed-speak, Minehan is speaking about the economy in Boston at 10:35 a.m. Bernanke discusses bank supervision in Chicago at 1:45 p.m. Later, at 5:45 p.m., Moskow speaks about labor and the economy.
- Regarding the NFP data, Wrightson ICAP is looking for a below consensus print of +50,000 in the light of the ADP data and in light of recent industry reports suggesting that temporary help hiring was soft in December. The firm is also looking for weakness in seasonal hiring in retail and assumes that construction will roughly match the average decline of 27K of the past two months. Separately, Goldman Sachs last derivatives auction on Dec. NFP was 79,500.
- Pimco's Gross has boosted holdings of debt maturing in 3 years or less in Pimco's Total Return Fund to 47%, the most in six years, from 19% in Oct. Yesterday, Gross reiterated his belief that the Fed will cut its benchmark rate to 4.25% this year.
- According to the Washington Post, South Korean officials said today that activity had been spotted near a suspected nuclear test site in North Korea, but there was no evidence to suggest Pyongyang was about to test another bomb. ABC news had quoted a U.S. defense official earlier as saying that the North appeared to have made preparations for second nuclear test. The first test took place on Oct. 9. Responding to the news, Japan's Prime Minister, Abe, said that Japan will take tougher steps if the North proceeds with a second nuclear test.
- In European economic news, French consumer confidence fell unexpectedly to -26 in Dec. from -25 in Nov. In the U.K., HBOS house prices fell 1.0% in Dec. versus expectations of a +1.0%. And in the Euro-zone, the unemployment rate fell as expected in Nov. to 7.6%. Retail sales in the region rose as expected by 0.5% in Dec, though the year-over-year increase was less than expected at +1.3%. Euro-zone consumer confidence rose to -6 in Dec from -7 in Nov. And PPI came in flat in Nov., below expectations of +0.1%.
- At 8:15 a.m. the 30Y future is up 13 ticks at 112 27/32, the 10Y future is climbing 8 ticks to 108 10/32 and the 2Y future is higher by 2 ¼ ticks at 102 9/3.
 
Treasury Market Preview by Trade the News Staff

- There is only one release on the U.S. calendar today, Consumer Credit for Nov. The estimate is +$5.4B. In Fed speak, Vice-Chairman, Kohn, speaks on the economic outlook in Atlanta at 12:45 p.m. In December, Kohn said that inflation was beginning to slow even though risks were tilted to the upside. Looking ahead to the rest of the week, data on the Trade Balance and Wholesale Inventories for Nov. will be released on Wednesday. And on Friday we have the Import Price Index, Advance Retail Sales and Business Inventories for Dec.
- In new supply, the Treasury will be announcing the amount of a 10Y tips auction today.
- In European economic news, German Retail Sales fell unexpectedly in Nov. by 0.3% or 0.5% YoY. German factory orders rose as expected in Nov. by 1.5%. In Switzerland, the unemployment rate rose more than expected in Dec. to 3.3% from 3.1%. Elsewhere, ECB Chief, Trichet, held a press conference a short while ago in Basel, Switzerland, where is the chairman of today's G-10 meeting. He said that the outlook for global GDP growth is encouraging and that growth in 2007 may be at or not far below growth in 2006. He added that the slowdown in the U.S. is seen orderly and limited, while Euro-zone growth is dynamic and is experiencing an ongoing pickup in investment. Finally, he said that risk is undervalued at a global level and that central banks must stay alert, credible and anchor inflation expectations. As a note, the G-10 meeting is also being attended by Fed Chairman, Bernanke, BOJ Governor, Fukui, and PBOC Governor, Zhou. In other European econoimc news, Goldman Sachs expects that the BOE will raise its benchmark rate ¼ pt in February, representing a revision to its prior forecast of no change. Finally, as a reminder, both the BOE and the ECB announce rate decision this week on Thursday.
- At 8:10 the 30Y future is down 6 ticks at 111 31/32, the 10Y future is down 4 ticks at 107 24/32 and the 2Y future is off 2 ticks at 102 2/32.
 
Treasury Market Preview by Trade the News Staff

- There is only one minor release scheduled for today, the IBD/TIPP Economic Optimism Index for Jan at 10:00 a.m. No Fed speak is scheduled for today. In pre-market releases, The U.S. Small-Business Owners Index fell in Dec. to 96.5 from 99.7 in Nov. Fewer owners expect the economy to improve over the next six months. The report also said that small firms pared hiring and spending plans on expectations the economy will slow.
- Reviewing Fed Vice Chairman, Kohn's comments from yesterday, he said that in the 2nd half of last year the economy slowed to a bit below the long-term rate of growth in the country's productive capacity, while at the same ttime, decreases in energy prices have substantially reduced overall consumer price inflation of late and core inflation has showed signs of slowing. As for his outtlook for 2007, Kohn said that conditions appear to be in place for a good year for the U.S economy, one marked by growth that is moderate and sustainable and by inflation that will be lower than last year's. He added that the economy appears to be weathering the downturn in housing with limited collateral effects and inflation appears to be easing with the aid of lower energy prices, well anchored inflation expecations, and competitive labor and product markets.
- The Japanese Finance Ministry official told reporters overnight that former Fed Chairman, Greenspan, said that the U.S. economy is showing signs of accelerating. Greenspan made the comments during a meeting yesterday afternoon with Japan's Finance Minister, Omi. In recent months, Greenspan has said that the housing sector is bottoming out.
- In European economic news, the Germany Trade Balance surplus rose more than expected to EUR 18.5B in Nov from EUR 17.4B in Oct, while the current account surplus likewise exceeded estimates, rising to EUR 12.5B from EUR 11.7B. Industrial production in Germany rose more than expected in Nov. by 1.8% or 6.0% YoY. Also in Germany, the government is to sell an additional EUR 7B in 2Y notes on Jan. 17. Elsewhere, the Austrian central bank said that further strengthening of the euro is the main risk to growth and the German economy is robust.
- The 30Y future is flat at 112 4/32, the 10Y future is off ½ tick at 107 25/32 and the 2Y future is lower by 1 tick at 102 1/32.
 
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Treasury Market Preview by Trade the News Staff

- In focus today are the releases of data on the U.S. Trade Balance for Nov at 8:30 a.m. and Wholesale Inventories for Nov. at 10:00 a.m. The Trade Balance deficit is expected to have risen to $60B from $58.9B, while Wholesale Inventories are seen rising 0.5%. In Fed-speak, Moskow is speaking on the U.S. economy at 12:30 p.m. In pre-market releases, MBA mortgage applications rose 16.6% in the week ending Jan. 5 after having risen 3.6% in the previous week.
- The FT said today in an editorial piece that the gloom about America's economy is overdone and that neither recent data nor longer-run trends support this view. The article also said that a hard landing of the U.S. economy has been incorrectly predicted for more than 20 years.
- In European economic news, the U.K. trade balance deficit rose in Nov to 4.723B sterling from 4.128B in Oct. The British Retail Consortium Shop Price Index rose 2.28% in Dec. yoy. In Germany, Wholesale Prices came in flat in Dec. after rising 0.1% in Nov. In France, Industrial Production fell unexpectedly in Nov. by 0.2% or 1.1% yoy. The French Trade Balance Deficit was EUR 2.8B in Nov versus expectations of EUR 2.3B. As a reminder, tomorrow both the ECB and BOE announce rate decisions, but neither are expected to change rates. The FT said today that ECB's Trichet may signal a Feb. hike compared to the consensus view that the ECB will hike in March.
- In Asia, the Chinese trade surplus rose to $177.47B in 2006 from $102B in 2005. Elsewhere, in Japan, BOJ official, Hayakawa said today that the Japanese economy is expanding moderately and the IT sector adjustment appears to be temporary despite slower US growth, but private consumption is likely to show only a modest rise. He added that for now the BOJ sees no reason to change its view that Japanese growth will be just above 2% and surpass its potential growth rate.
- At 8:15 a.m. the 30Y future is down 2 ticks at 112 2/32, the 10Y future is off 1 tick at 107 25/32 and the 2Y future is off ½ tick at 102 1/32.
 
- On the U.S. calendar today are the releases of Initial Jobless Claims and Continuing Claims. Jobless claims are expected to be 320K, while continuing claims are seen rising to 2.45M from 2.446M. In Fed speak, Bies is speaking at a risk mitigation summit in Washington at 10:15 a.m. A few minutes ago, Fed’s Geither said that the rise in U.S. productivity growth is likely to continue, credibility on monetary policy has produced more stable inflation expectations and large US dollar reserves could mask or dampen effects of risk premiums. He also said it the markets are still priced for unusally low risk and that it is unclear why the markets are not fearing more risk.
- WSJ Fed Watcher, Greg Ip, wrote today that surging exports are reversing the trend in the U.S. trade deficit, but that the widening deficit with China, which rose by 74% to $177.25B last year, is causing headaches at home and pushing policy makers to respond. On this subject, the FT wrote today that Max Baucus, the Chairman of the Senate finance committee, is expected to introduce legislation to lower the burden of proof for China to be accused of currency manipulation by the US Treasury. And in the House of Representatives, the head of the trade subcommitte, Sander Levin, will introduce a bill to prompt the use of anti subsidy laws against non-market economies such as China.
- In new supply today, the Treasury will be selling $9.0B of 10Y tips at 1:00 p.m.
- In European economic news, the Bank of England increased its benchmark rate by ¼ pt to 5.25% in a surprise move. The pound rose 100 pips against the dollar to above $1.95. In its accompanying statement, the BOE’s MPC wrote that the margin of spare capacity in the economy appears limited, adding to domestic pricing pressures. The MPC noted that CPI inflation was 2.7% in Nov and said that it is likely that inflation will rise further above the target in the near-term, but then fall back as energy and import price inflation abate. A major wire wrote following the decision that the MPC would have had access to next week’s CPI report and today’s move suggests that CPI could be approaching the BOE’s inflation ceiling of 3%. Elsewhere, the ECB left rates unchanged at 3.25%. Trichet will speak at his regular news conference shortly. Moving on to the Euro-zone, final Q3 GDP came in as expected at 0.5% or 2.7% yoy. Additionally, the EU raised its Q1 2007 GDP forecast to between 0.4% and 0.8% and upped its Q2 forecast to between 0.4% and 0.9%. In other European economic news, the President of the Swiss National Bank, Roth, said that the Swiss franc is moving against fundamentals, adding that interest rate normalization is not finished, economic dynamics are strong and conditions are generally positive for growth.
 
Treasury Market Preview by Trade the News Staff

- In focus today are the releases of Advance Retail Sales, Retail Sales Less Autos and Import Prices for Dec. at 8:30 a.m. Later at 10:00 a.m. we have Business Inventories for Nov and at 2:00 p.m. the Monthly Budget Statement for Dec. The estimate for Retail Sales is +0.7%, for Retail Sales Less Autos +0.5%, for the Import Price Index +0.6%. Business Inventories are seen rising 0.4%, while the Monthly Budget Statement is expected to show a surplus of $25.6B. In Fed Speak, Minehan is speaking on the economy at 12:15. Yesterday, she announced that she will be retiring from the Boston Fed.
- Regarding the Retail Sales data, the WSJ wrote that today's report could paint a dismal picture of sales over the holiday period. The Journal says that one reason Nov. sales was strong may have been that Thanksgiving came earlier, causing more sales to be pushed into Nov. And if they were pushed into Nov., they probably were pulled from Dec. As for the monthly Budget Statement, the Financial Times wrote today that the U.S. Treasury could cut the amount of new debt it sells this year amid rising tax receipts. The Treasury has cut the issuance sizes in recent months of some Treasury auctions across the two, three and five-year maturities. If the budget deficit falls towards $150B in fiscal 2007, the Treasury may make more dramatic changes such as shifting the current monthly sales of five-year notes to a quarterly schedule or eliminating the three-year note completely. This month the Congressional Budget Office is expected to cut its forecast for the deficit for the current year.
- In European news, French CPI in Dec. rose as expected by 0.2% mom and 1.5% yoy, while Spanish CPI likewise rose as expected in the month by 0.3% mom and 2.7% yoy. Elsehwere, in Germany, the DIW research institute forecasted German GDP growth of 0.4% in Q1 and said that it sees no halt to the economic upswing, though it believes that the increase in the VAT will dent growth. Finally, in Greece, a anonymous revolutionary group attacked the U.S. embassy in Athens overnight, but little damage and no injuries were reported.
- The bond market closes early today ahead of the Martin Luther King Jr. Holiday on Monday.
- At 8:15 a.m. the 30Y future is down 3 ticks at 111 3/32, the 10Y future is down 1 tick at 107 8 1/2/32 and the 2Y future is off ½ tick at 101 29/32.
 
Treasury Market Preview by Trade the News Staff

- On the U.S. calendar today is the release of the Empire Manufacturing Index for Jan. The index is seen falling to 19.5 from 23.1. Looking ahead to the rest of the week, the Producer Price Index for Dec is due out tomorrow along with TICS data for Nov., Industrial Production and Capacity Utilization for Dec, the NAHB Housing Index for Jan. and the Fed’s Beige Book. On Thursday we have CPI for Dec. and the Philly Fed Index for Jan. On Friday the Michigan Confidence Index for Jan. will be released. One other event to look out for this week on Thursday is Bernanke’s appearance before the Senate Budget Committee.
- In Treasury news, the Financial Times wrote today that there remains much uncertainty as to what will happen to the U.S. housing market, and what effect,the housing correction may yet have on consumer spending and growth. The FT said the recent data has been mixed, suggesting that the housing market is bottoming out, though if the bond market has overestimated the likelihood of Fed rate cuts, bond yields and mortgage rates could edge up, kicking away one of the main props supporting demand for homes. In turn, this could cause a new round of housing weakness. Also regarding housing, the homebuilder, Centex, reported Q3 earniings today below consensus and said that home closings were 8,360, down 12% yoy.
- In European economic news, the ZEW Economic Sentiment Index in Germany rose more than expected in Jan to –3.6 from –19, while the current situation index climbed to 70.6 from 63.5. In the United Kingdom, CPI rose 0.6% in Dec., above expectations of 0.4%, while the yoy rate was 3%. BOE MPC member Sentence, said today that the need to reinforce expectations of low and stable inflation and to keep demand conditions in check have both pointed to the need to raise interest rates. He added that the Committee will continue to monitor economic conditions to ensure the BOE remains on track to meet the CPI target over the medium term. In other European economic news, ECB’s Liebscher said today that interest rates in the Eurozone remain low and that the effect of the increase of the German VAT on growth has been less than expected.
- At 8:15 a.m. the 30Y future is up 4 ticks at 110 30/32, the 10Y future is rising 3 ticks to 107 6/32 and the 2Y future is up 1 tick at 101 29/32.
 
Treasury Market Preview by Trade the News Staff

- In focus today are the releases of the Producer Price Index, PPI ex-food and energy for Dec., TIC Flows for Nov., Industrial Production and Capacity Utilization for Dec, the NAHB Housing Market Index for Jan. and the Fed's Beige Book. PPI is expected to have risen 0.5%, while PPI ex-food and energy is seen up 0.1%. Net Long-term TIC Flows are expected to be $75B. Industrial Production is expected to have risen 0.1%, while Capacity Utilization is seen falling to 81.7% from 81.8%. The NAHB Housing Market Index is expected to have increased to 33 from 32. In Fed Speak, Mishkin is speaking on House Prices in New York at 1:00 p.m.. Yellen is speaking on the economy at 2:50 p.m. and later, at 5:45 p.m., Poole is speaking at a monetary conference. In pre-market releases, MBA Mortgage Applications fell 0.6% in the week ending Jan. 12. And U.S. same store sales were unchanged from a week ago, according to ICSC and UBS.
- Regarding the PPI data, Wrightson ICAP believes that energy prices will boost PPI and CPI this week, noting that oil and natural gas prices will largely responsible for the 1.1% increase in December import prices. As for industrial production, Wrigthson says that a couple of categories could be weak, including auto production, utilities and construction materials output, though should be offset by oil and coal production as well as gains in steel and electrical equipment.
- In new supply, tomorrow the Treasury will announce the amount of a 20Y TIPS auction scheduled for next week on the 23rd.
- In European releases, the ILO Unemployment rate in the U.K. was unchanged in Nov. at 5.5%. Jobless claims change was -5.5K, below estimates of -3.5K, while the prior number was revised down to -7.9K from -5.7K, representing the lowest number since July of 2004. Average earnings in the U.K. including bonus rose 4.1% in Nov, below expectations of 4.2%. Also in the U.K. the Chancellor of the Exchequer, Brown, said overnight that the BOE acted pre-emptively on rates, noting that the increase in inflation reflected oil prices and pressure in the housing market. In Germany, final CPI rose 0.8% in Dec, matching expectations. The German Industry Association raised its 2007 GDP forecast to just over 2.0% from 1.4%. And in the Euro-zone, CPI rose as expected in Dec. by 0.4% mom and 1.9% yoy.
- In Japan, the BOJ announces its rate decision tonight. The consenses expectation is that the BOJ will lift its overnight rate 0.25% to 0.5%. The Financial Times wrote today that not much has changed in terms of data since December when the BOJ opted to leave rates unchanged. Although Q4 growth will likely outpace lackluster Q3 growth, there is no evidence that prices are accelerating. However, the article says that the BOJ is concerned about the weak yen, which is trading at 20 year lows against the dollar and euro.
- At 8:15 a.m. the 30Y future is up 6 ticks at 111 5/32, the 10Y future is up 3 ½ ticks at 107 11/32 and the 2Y future is climbing 1 tick to 101 30/32.
 
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