WEDNESDAY, SEPTEMBER 30, 2015
TOP NEWS
• Euro zone inflation turns negative, putting pressure on ECB
Euro zone inflation turned negative again in September as oil prices tumbled, raising pressure on the European Central Bank to
beef up its asset purchases to kick start anaemic price growth. Prices fell by 0.1 percent on an annual basis, the first time inflation has dipped below zero since March, missing analyst expectations for a zero reading after August's 0.1 percent increase.
• Japan factory output slides unexpectedly, risks of recession rising
Japan's factory output unexpectedly fell for the second straight month in August, fuelling worries the economy is slipping back
into recession and raising more doubts about whether the government can reignite growth and end decades of deflation. August factory output fell 0.5 percent month-on-month, trade ministry data showed, short of a 1.0 percent increase expected by
analysts. Separate data showed retail sales rose just 0.8 percent in August from a year earlier, slowing markedly from 1.8 percent growth in July.
• German labour market resilient despite unemployment uptick
German unemployment edged up in September due partly to late school holidays in some states, but the jobless rate held at a
record low in a further sign that consumer spending will propel growth in Europe's largest economy this year. The seasonallyadjusted unemployment total rose by 2,000 to 2.795 million, data from the Labour Office showed. In another positive sign for
private consumption, retail sales jumped by 2.8 percent in real terms from January to August compared with the same period in
2014, data showed.
• UK current account deficit narrows sharply, living standards pick up
Britain's current account deficit narrowed much more sharply than expected in the three months to June, while living standards
rose at their fastest annual rate in more than five years, official figures showed. Current account deficit fell to 16.8 billion pounds
in the second quarter of 2015 from 24.0 billion pounds in the first three months of the year, its lowest share of gross domestic
product in two years at 3.6 percent. Real household disposable incomes were 3.7 percent higher on the year.
• U.S. consumer confidence rises in September
U.S. consumer confidence rose and was higher than expected in September, according to a private sector report released on
Tuesday. The Conference Board said its index of consumer attitudes rose to 103.0, the highest since January, from a downwardly
revised 101.3 the month before. Economists had expected a reading of 96.1, according to a Reuters poll. The August reading was
revised to 101.3 from 101.5. The consumer present situation index was 121.1 in September. The consumer expectations index
however fell to 91.0 from 91.6.
TRADEWEB MARKETS (AS OF 07:00 ET)
THE MORNING BENCHMARK
MORNING MEETING
DATA
• 07:00 MBA Weekly Mortgage Application Indices
• 08:15 ADP National Employment Report (Sep) (mkt 194k, prev 190k)
• 09:45 Chicago PMI (Sep) (mkt 53.0, prev 54.4)
• 10:30 EIA Weekly Petroleum Statistics
EVENTS
• 08:35 FRB New York's Dudley (voter, dove) speaks at SIFMA liquidity forum; New York City
• 10:30 IMF's Lagarde discusses the state of the global economy
• 11:45 FedTrade operation 30-year Ginnie Mae (max $1.125 bn)
• 15:00 Fed Chair Yellen (voter, dove) speaks at conference on community banking research and policy; St. Louis
• 15:10 FRB St. Louis's Bullard (non-voter, hawk) gives remarks at community banking conf; St. Louis
• 19:00 Fed Governor Brainard (voter, moderate) speaks at conference on community banking research and policy; St. Louis
ISSUANCE
• Treasury coupon auctions settle ($90 bn 2s/5s and 7s and $13 bn 10-year TIPS raise $33.898 bn new cash)
MARKET BIAS
• The tactical bias is neutral/supportive into month/quarter-end then looking for a modest correction lower prior to payrolls
• Look for a 2.12% to 2.03% range in 10s
• The strategic bias is flat
• The curve bias is flat though favors flatteners
TECHNICAL OVERVIEW
Cash Support and Resistance
5-year 10-year
Resistance 1.37% 2.04%
Support
1.43% 2.13%
Best Trade: 10-Year Sep Contract
Position Entry
Stop
Exit
Sell
128-190 3/32
128-020
Reason: Some signs of a corrective phase emerging
OVERNIGHT TREASURIES
• 10-year futures lead Bonds down under stronger stocks overnight
• Moderate volume, 155k 10-year futures trade by 06:05 EST
• Dec 10s mark 128-25.5/128-12.5 range overnight, last at 128-13.5
• Customer flows mixed, talk Asian accounts sell strength in Tokyo, lift weakness in London
• 10s trade in a range of 2.068% and 2.097% overnight
• USTs underperforming Germany by 1.9bp in the 10-year maturity compared to the previous London close
OVERNIGHT NEWS RECAP
• Market opens risk-on as lower month end volumes allow equity bounce
• Brent Crude slides to $45 as inventories continue to grow
• Shanghai Composite gains 0.5%
• UK Sept GfK Consumer Confidence 3 (exp 6)
• German Aug Retail Sales -0.4% m/m (exp 0.2, prev 1.6) and 2.5% y/y (exp 3.1, prev 3.8)
• UK Sept Nationwide House Prices 0.5% m/m (exp 0.4, prev 0.4) and 3.8% y/y (exp 3.8, prev 3.2)
• France July Consumer Spending 0.3% (exp 0.1%, prev 0.4%)
• France August Consumer Spending 0% (exp 0.4%, prev 0.7%)
• German Sept Unemployment 2.708m (exp 2.693m, prev 2.796m), rate unch at 6.4%
• Italy Aug Unemployment Rate 11.9% (exp 11.9, prev 12%)
• UK Q2 GDP 0.7% q/q (exp 0.7, prev 0.7) and 2.4% y/y (exp 2.6%, prev 2.6%)
• UK Q2 Business Investment 1% q/q (prev 2.9%) and 3.1% y/y (prev 5%)
• UK Q2 Current Account GBP -16.767bn (exp GBP -22.25bn, prev GBP -24bn)
• EZ Sept Inflation Flash -0.1% y/y (exp 0%, prev 0.1%)
• EZ Aug Unemployment Rate 11% (exp 10.9%, prev 10.9%)
• Italy Sept CPI Preliminary -0.3% m/m (exp -0.3, prev 0.2) and 0.3% y/y (exp 0.3, prev 0.4)
• Italy Aug Producer Prices -0.7% m/m (prev -0.5%) and -2.9% (prev -2.3%)
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THE MORNING BENCHMARK
OVERSEAS SOVEREIGNS
JGBS
• 10-yr(#340) +1.5bp at 0.345% (0.34%-0.345%); 2-yr(new#357) flat at 0.015%
• 5s +0.5bp(0.06%), 20s +2bp(1.125%), 30s +3.5bp(1.40%), 40s +2bp(1.535%)
• JGBs soften amid higher stocks before Thursday's 10-yr sale despite BoJ purchase
EGBs
• 10yr Bund yield rises 1.25bp
• 10yr Italy yield falls 1.25bp
• 10yr Spain yield falls 1.5bp
• 10yr Portugal yield falls 2.25bp
• 10yr Greece yield rises 1.5bp
• Bunds 05s/30s curve 2.5bp steeper
• Eurostoxx50 +77.96 (+2.57%)
GILTS
• Gilts open lower tracking core markets
• APF reinvestment to underpin in 7 to 15-year bucket as well as month end duration
• Sellers probe recent lows on 10-year cash at 1.799%
• 10yr UK/Germany wider at 119.5bp, resistance noted from recent highs at 120.5bp
• 2s/10 bounces of yesterday’s low to prove 38.2% Fibo from year lows and highs at 120bp
• 10-year cash trades in 1.762% to 1.804% range
• Volumes solid into data, just over 53k Dec Gilts trade as of 06.30 EST
RATES SNAPSHOT
10-yr Current Yield Spread to Trsy (bps)
US
2.101%
JGB
0.345%
-177
BUND
0.605%
-150
GILTS
1.787%
-31
Prices from Tradeweb
EQUITY RECAP
NIKKEI 17388.15, +457
• NIKKEI gains 2.7% as reduced month end volumes allow equity bounce
DAX 9685.05, +236 FTSE 100 6035.87, +127
• FTSE moves 2.14% higher as retailers benefit from improved outlook from Sainsbury’s
Dow Futures +186, S&P Futures +23, NASDAQ Futures +52
FX SNAPSHOT
USD/JPY 120.31 EUR/USD 1.1213
COMMODITY SNAPSHOT
Gold $1122.96 -$4.10, Oil $45.05 -$0.18
SPREAD PRODUCT OUTLOOK
MORTGAGES
• The 30yrCC was marked at 2.828% at the 3pm close; +111.5bp to the 5/10 treasury blend and +77.5bp above the 10-year swap
rate, 1.0 and 2.4bp wider, respectively, vs. Monday’s closing levels.
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THE MORNING BENCHMARK
CHART OF THE DAY
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