Administrative Note

May 22nd, 2015 8:33 am is closed for the holiday weekend.


Enjoy the holiday safely and remember those who died to preserve our freedom.


Overnight Preview

May 21st, 2015 12:11 pm

Via Robert Sinche at Amherst Pierpont Securities:

JAPAN: The BOJ announces the outcome of their policy meeting with no changes to the ongoing purchases of JGBs expected.

NEW ZEALAND: Consumer Confidence has been creeping irregularly higher through the first 4 months of the year, and any increase in May would likely mark a 10-month high.

RUSSIA: At 9am EDT there will be the April data on Unemployment Rate (5.9% in March, BBerg consensus 6.0%), Real Wages (-9.3% YOY in March), and Real Retail Sales (-8.7% YOY in March).

GERMANY: The BBerg consensus expects the preliminary 0.3% QOQ rise in real GDP for 1Q2015 to be affirmed. At the same time, the BBerg consensus expects slight declines in the IFO Business Climate Index components, with the headline index down to 108.3 in May from 108.6 in April.

FRANCE: The May data on Business Confidence and components of the index will be reported. The BBerg consensus expects the Business Confidence Index to creep up to 97 from 96 in April;  we watch the Own-Company Production Outlook, and index that has fallen for 3 straight months from a cycle-high 13 in January to 6 in March.

ITALY: March data on Industrial Orders and Sales and Retail Sales is likely to continue to show modest improvement, but only a very sluggish recovery underway.

Existing Home Sales

May 21st, 2015 10:55 am

Via Stephen Stanley at Amherst Pierpont Securities:

Existing home sales slipped in April to a 5.04 million unit annualized pace, below expectations.  The NAR press release acknowledges the softer result but emphasizes that the main culprit is a lack of supply.  The NAR chief economist states that: “April’s setback is the result of lagging supply relative to demand and the upward pressure it’s putting on prices.  However, the overall data and feedback we’re hearing from Realtors® continues to point to elevated levels of buying interest compared to a year ago.”  I would also add that since existing home sales are not recorded until contract closing, the April reading is still possibly reflective of purchases that were agreed to in February and March, when weather was still an issue.

In any case, this inventory issue continues to be a key one for the housing market.  There was a nice boost to homes on the market in April, in line with seasonal norms, but the year-over-year change in inventories is still slightly negative.  The months’ supply figure jumped to 5.3 from 4.6 in March, but the April level is still well below the traditional dividing line between a buyers’ market and a sellers’ market of 6 months.  As a result, properties sold in April faster (39 days on average) than at any time since the NAR began tracking the data in 2011 with the single exception of June 2013.  The tightness in the market is leading to firm prices, including the reappearance of bidding wars in some markets.  Roughly 40% of properties sold last month went at or above asking price, the highest proportion since the NAR began to track this data at the end of 2012.  The good news is that the April housing starts data suggest that help may finally be on the way in the form of a stepped-up supply of new homes.


Atlanta Fed GDP Forecast

May 21st, 2015 9:43 am

The latest forecast of the Atlanta Fed in its model of GDP for Q2 is 0.7. The Bank produced that forecast on May 19 and it was unchanged from the previous forecast on May 13.

Ten Year TIPS

May 21st, 2015 9:34 am

Via Gennadiy Goldberg at TDSecurities ( an excerpt from a longer piece):

TIPS Auction on Tap: Treasury will auction $13B in reopened 10yr TIPS today, with breakevens continuing to hover around recent highs as crude oil remains firmer and market-based measures of inflation continue to drift higher. While we see some downside risks to tomorrow’s CPI report as seasonal factors should cause energy to weigh on headline prices, we believe the 10yr TIPS reopening could go reasonably well. The near-25bp increase in real yields since the start of May has likely left the market pricing of inflation expectations on a better footing, with higher breakevens similarly suggesting the market penciling in higher inflation expectations. Recent statistics suggest that the 10yr reopening could go reasonably well, with the past 6 reopenings stopping an average of 0.7bps through 1PM levels (see auction analytics attached). The data similarly shows that investment funds have taken an average of 45% of the past 6 reopenings, likely bringing today’s buy side takedown to 67% (58% indirects and 9% directs).

Initial Claims

May 21st, 2015 9:30 am

Via Stephen Stanley at Amherst Pierpont Securities:

Initial jobless claims rebounded by 10,000 to 274,000 in the week ended May 16 but remained at an extremely low level by historical standards.  This was the 11th straight reading below 300K and 4th in a row below 275K.  The four-week average fell to 266K, the lowest since 2000 and within 1K of the lowest since the early 1970s.  It is also noteworthy that continuing claims fell yet again in the week ended May 9, taking the insured unemployment rate to 1.6% for the first time in this cycle, matching the low mark set in 2000.  I would just remind that the labor market in 2000 was the tightest in my lifetime with an unemployment rate of around 4%.  Despite the claims readings, it is fairly evident that the labor market is not THAT tight, but do we really still have a near-zero policy rate and a $4½ trillion Fed balance sheet?


May 21st, 2015 6:28 am

Via Marc Chandler at Brown Brothers Harriman:

Dollar Softens, Sterling Shines

– The FOMC minutes came in pretty balanced, as we expected
– April retail sales in the UK jumped 1.2%, three times more than the market expected
– The eurozone composite flash PMI slipped to a three month low of 53.4 in May from 53.9 in April
– HSBC’s flash PMI for China’s manufacturing firmed to 49.1 from 48.9
– The Bank of Japan meets today and tomorrow; MOF weekly portfolio flow data showed that last week Japanese investors stepped up their purchases of foreign bonds
– During the North American session, the US reports weekly jobless claims, May Philly Fed survey and Markit PMI, and April existing home sales and leading index
– South African Reserve Bank meets and is expected to keep rates steady at 5.75%

Price action:  The dollar is trading softer against the majors.  Sterling is outperforming  on strong retail sales data, while the dollar bloc is underperforming.  The euro was unable to break below Wednesday’s low near $1.1060 earlier, and is currently around $1.165.  Likewise, sterling is bouncing back above $1.55 after the move below ran out of steam, now trading just below $1.57.  Dollar/yen is trading just above 121.  EM currencies are mostly firmer, with HUF, THB, and TRY outperforming.  TWD and RUB are underperforming.  MSCI Asia Pacific rose 0.1%, with the Nikkei flat and the Shanghai Composite up 1.9%.  Euro Stoxx 600 is flat near midday, while S&P futures are pointing to a lower open.  Global bond markets are mixed, with Greek 10-year yields up 2 bp.  The US 10-year yield is down 1 bp to 2.23%.  

  • The FOMC minutes came in pretty balanced, as we expected.  We don’t see much new or different, though there was some knee-jerk dollar selling as the minutes came out was due to the headline of “many saw June rate rise as unlikely.”  As the rest of the minutes trickled out and were more balanced, the dollar quickly took back those losses and ended the day firm.  Virtually all the market surveys show the majority are looking for September lift-off, not June.
  • The US Dollar Index advanced in the first three days of the week but is under some pressure today.  The FOMC minutes confirmed what the market had already known, which is a rate hike next month is highly unlikely.  Meanwhile outside of the UK’s strong retail sales report, most of the data today has disappointed.  These include the flash PMIs in both China and the eurozone.
  • April retail sales in the UK jumped 1.2%, three times more than the market expected.  It completely recoups the 0.7% decline in March and more, and the 1.2% gain is more than the entire first quarter.  Warmer weather induced strong buying of clothes and footwear, which were up 5.2% on the month.  Shoppers are also responding to discounts.  The price deflator stands at -3.2% year-over-year.
  • The UK debt markets did not respond much to the unexpected strength of retail sales.  The equity market turned higher, bucking the losses elsewhere, but it was sterling that was the big winner.  Yesterday it had snapped a three-day decline that had seen it shed about 3.5 cents.  Sterling rallied more than a cent on the news.  Between yesterday and today it has retraced 61.8% of its three-day drop (~$1.5670).  Above there, resistance is seen near $1.5700.  The intra-day technicals are stretched by the sharp advance, warning of the need for some consolidation or correction.
  • The eurozone composite flash PMI slipped to a three month low of 53.4 in May from 53.9 in April.  It was Germany that disappointed.  Its flash manufacturing survey eased to 51.4 from 51.9 and services softened to 52.9 from 54.4.  Both were weaker than expected.  French manufacturing did better than expected.  However, at 49.3, it remains below the boom/bust level, though it is above the 48.4 print in April.  The service PMI rose to 51.6 from 50.8.  The consensus was for 51.9.
  • HSBC’s flash PMI for China’s manufacturing firmed to 49.1 from 48.9.  This was a touch lower than expectations and is the third month below 50.  New orders were at nearly a two-year low of 46.8, suggesting the manufacturing sector may not have bottomed.  Output itself fell below 50 for the first time this year.  Employment contracted for the 19th consecutive month.  However, weak China data hasn’t really impacted markets much recently, as further stimulus measures have largely been priced in.  PBOC fixed USD/CNY at another new cycle low this week (and the lowest since February 2014), supporting our view that the authorities aren’t pushing a weak yuan policy to stimulate the economy.
  • On one hand, the rise of the China’s service sector could blunt the impact of the contraction in the manufacturing sector.  On the other hand, recent reports have suggested that the state-owned enterprises are shedding employment while the budding private sector is hiring.  The HSBC report casts raises questions about that assessment.  Chinese stocks rallied, with the Shanghai Composite tacking on 1.9%, ostensibly in anticipation of more economic stimulus.  That said, Chinese stocks have been on fire this year.  The Shanghai Composite is up 40% this year and the Shenzhen Composite (perhaps partly in anticipation of Shenzhen-Hong Kong link) is up almost 92% this year.
  • The Bank of Japan meets today and tomorrow.  There are some reports suggesting that it may upgrade its assessment of the economy.  While this is possible, remember that at the last meeting, the BOJ trimmed its growth forecast and pushed out when it would meet its inflation target by six months.
  • Separately, the MOF weekly portfolio flow data showed that last week Japanese investors stepped up their purchases of foreign bonds.  The JPY1.099 trln was the largest since last November.  Yet, Japanese purchases of foreign stocks fell to JPY39.4 bln, the lowest since last November and have been trending lower since March.  Foreign demand for Japanese assets has waned.  They sold JGBs in sufficient size to practically offset the past three weeks of purchases.  Foreign investors were big buyers of Japanese stocks in April, but demand has softened in May.
  • During the North American session, the US reports weekly jobless claims (270k consensus), May Philly Fed survey (8.0 consensus) and Markit PMI (54.5 consensus), and April existing home sales (0.8% consensus) and leading index (0.3% consensus).  Initial jobless claims have continued to improve in recent months.  Today’s reading is for the week ended May 16, which is the week that the May jobs survey is taken.  April housing starts and building permits surged in April, suggesting upside risk to today’s existing home sales (consensus 0.8% m/m).
  • South African Reserve Bank meets and is expected to keep rates steady at 5.75%.  SARB has maintained a hawkish stance, and is likely to retain it as the inflation numbers are likely to worsen further.  April CPI rose 4.6% y/y vs. 4.0% in March.  However, we don’t see how it can justify an actual rate hike in 2015 given the weak economy.  It’s been on hold since the last 25 bp hike back in July 2014.

Month End Extension

May 21st, 2015 6:24 am

Via Bloomberg:

* Market has additional support from approach of month-end;
Barclays estimated 0.13yr duration extension for Treasury
Index, biggest May extension since 2009

What to Watch Today

May 21st, 2015 6:22 am

Via Bloomberg:


* (All times New York)
* Economic Data
* 8:30am: Chicago Fed Nat Activity Index, April, est, 0.00
(prior -0.42)
* 8:30am: Initial Jobless Claims, May 16, est. 270k (prior
* Continuing Claims, May 9 est. 2.231k (prior 2.229m)
* 9:45am: Markit US Manufacturing PMI, May preliminary,
est. 54.5 (prior 54.1)
* 9:45am: Bloomberg Consumer Comfort, May 17 (prior 43.5)
* Bloomberg Economic Expectations, May (prior 50.0)
* 10:00am: Philadelphia Fed Business Outlook, May, est.
8.0 (prior 7.5)
* 10:00am: Existing Home Sales, April, est. 5.23m (prior
* Existing Home sales m/m, April, est. 0.8% (prior
* 10:00am: Leading Index, April, est. 0.3% (prior 0.2%)
* 11:00am: Kansas City Fed Manf. Activity, May, est. -4.0
(prior -7)
* Central Banks
* 7:00pm: Fed’s Williams speaks in Stanford, California
* 11:00pm: Bank of Japan releases policy statement, Kuroda
holds press conference
* Supply
* 11:00am: U.S. to announce plans for auctions of 3M/6M/1Y
bills, 2Y/5Y/7Y notes, 2Y FRN
* 1:00pm: U.S. to sell $13b of 10Y TIPS

Secondary market Trading in Corporate Bonds Yesterday

May 21st, 2015 6:19 am

Via Bloomberg:

IG CREDIT: Communications Issues Led Trading on Client Flows
2015-05-21 09:55:10.55 GMT

By Robert Elson
(Bloomberg) — Secondary IG trading ended with a Trace
count of $15.6b vs $16.4b Tuesday, $17.5b the previous
Wednesday. 10-DMA $14.9b.

* 144a trading added $3.1b of IG volume vs $3.4b on Tuesday,
$2.3b last Wednesday
* Most active issues:
* TWC 4.50% 2042 was 1st with 2-way client flows
accounting for 96% of volume
* VZ 3.50% 2024 was next with client flows taking 100% of
* GS 2.60% 2020 was 3rd; client flows at 100%
* VW 1.15% 2015 was most active 144a issue; dealer-to-dealer
trades took 62% of volume
* Bloomberg US IG Corporate Bond Index OAS at 138.2 vs 136.7;
2015 high/low 147.3/129.6; 2014 high/low 144.7/102.3
* BofAML IG Master Index +133 vs +132; +129, the tight for
2015 was seen Mar. 6; 2014 range was +151, seen Dec 16;
+106, the low and tightest spread since July 2007 was seen
June 24
* Markit CDX.IG.24 5Y Index at 64.3 vs 63.8; 76.1, the wide
for 2014 was seen Dec 16; 55 was seen July 3, the low for
2014 and the lowest level since Oct 2007
* IG issuance totaled $8.85b vs $22.55b Tuesday, $18b Monday;
week totals $49.4b
* May’s IG issuance total now $148.85b; YTD $733.535b
* Pipeline – China Three Gorges Added to List