After the Chinese GDP what is left of Interest
Today, the market calendar remains unexciting. All the market excitement was in the Asian markets early this morning, with Chinese GDP and Industrial Production all in line with forecast except for a high print on retails sales. The surprise was a drop in Japanese industrial production reporting well under forecast. The rest of the day is boring, so watch for news flow.
On the economic side, only the US PPI and Michigan consumer sentiment warrant some attention. The events are limited to a speech of Atlanta Fed Lockhart, after the European closure. Lockhart is an interesting speaker and currently FOMC speaker. He is a moderate who votes currently with the majority at the FOMC meetings. He recently was open to more easing, but not yet convinced. Have recent reports convinced him one or another way on future policy.
June PPI (Friday) will, just like import prices, be affected by lower energy prices. Therefore, headline PPI will show a sharp decline (consensus -0.4% M/M and 0.2% Y/Y). However, core PPI may show a more trend-like 0.2% M/M increase, which would bring the Y/Y rate to 2.6% from 2.7% Y/Y previously. The steep downward surprise of the import prices means that the risks for headline and core PPI are also clearly on the downside of expectations. However, the relationship between import prices and PPI are well known, meaning that markets shouldn’t be surprised by such an outcome. Of course, in the FOMC framework, it remains an element that brings QE a bit closer.
Michigan consumer sentiment is expected to have broadly stabilized in early July (at a weak 73.5). Lower gasoline price might have been a positive, but the general weakness of the labor market and slow income gains should prevent any big improvement in confidence.
Today, the Italian debt agency issues a new 3-yr BTP (€2.5-3.5B % Jul2015). It also taps the off the run 10-yr BTP (4.25% Sep2019), the on the run 10-yr BTP (5.50% Mar2022) and the off the run 15-yr BTP (4.75% Aug2023) for a combined €1-1.75B. Yesterday’s downgrade might make thinks complicated but we think the Italian treasury will have drummed up enough local demand to digest the, mostly short term, and in general, relatively low, amount of debt.
The US 30-year bond auction (re-opening of 3% 2042) went well. The auction stopped firmly through the WI bid (2.58% versus 2.589%) Demand was strong, but not like yesterday’s stellar 10-year Note auction, as the bid/cover amounted to 2.70 (average 2.65). Indirect bidders took down 36.8% of the auction and Direct bidders 20.1%. While the auction went well, there was no reaction afterwards in the market. Remember that the exceptional strong 10-year Note auction caused a spike higher that was immediately seized to sell and book profits.
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