After briefly breaking range support in a thinly traded marketplace yesterday, equity futures are recovering this morning as investors await a key ISM survey which tracks the services industry. Meanwhile, the U.S. bond market was well bid overnight after the Bank of Japan announced new quantitative easing efforts.
S&P 500 futures are up 6.25 points to 1,141.00 and Dow futures are 37 points higher at 10,744. Both contracts are currently at session highs.
The 2-year Treasury note is UNCH at 99-29 yielding 0.415% and the 10-year Treasury note is +0-04 at 101-12 yielding 2.465%(-1.4bps). The 2s/10s curve is 2bps flatter at 205bps. The November delivery FNCL 4.0 is +0-02 at 102-27.
Light crude oil is +0.75% at $82.08 per barrel, and gold prices are +1.00% at $1,328.20 per ounce.
Overnight, the Bank of Japan unexpectedly cut the overnight lending rate from 0.1% to a zero to 0.1% band. It also set aside $60 billion to buy government bonds and other assets. Economists at BMO Capital Markets said the move was a reaction to recent weak data.
“The prime examples were the unexpected back-to-back declines in industrial production, and the large manufacturers’ deteriorating outlook on their prospects, which point to a real struggle in the overall economy to churn out any growth at all in Q3.”
Meanwhile, the Australian central bank left rates unchanged, defying expectations of a hike from the current 4.50% level.
In addition to watching the ISM data this morning, investors will also be reading headlines from the International Monetary Fund’s latest Global Financial Stability Report. The study is being released just days ahead the semi-annual IMF and World Bank meetings in Washington.
Key Events Today:
10:00 ― The ISM Non-Manufacturing Index is anticipated to rise half a point in September to 52.0, just two points above the break-even level. This index, which tracks the construction, financial, and services sectors, has been slowing for several months, including a 2.8-point drop in August. Reuters forecasts of 74 analysts ranged from 50.0 to 53.3.
“We think the index is consistent with about 1.5% annualized GDP growth,” said economists at Nomura Global Economics. “Our forecast for September is 51.8. Given that we think this is roughly the current trend in GDP growth, we expect the non-manufacturing ISM to stabilize around its current levels.”
Analysts at IHS Global Insight were optimistic, predicting a bounce to 53.5 “as freight volumes have picked up in the past few weeks from a summer lull.”
They added: “The employment index should also move up to just below 50.0. Overall, a modest improvement in September - but nothing to get excited about.”
ISSUANCE
* Fannie Mae note announcement
* 11:30 Treasury auctions 4-week bills
* VTB Bank, benchmark 2-part long 5s/10s; Citi/DB/VTB
* Dubai, USD deal expected; DB/HSBC/SCB
* Pohang, $700m 5-year rumored; BAML/BNP/DB/GS/MS
* Qatar Telecom, benchmark offering; Barc/DB/MUFJ/QNB/StanChart/RBS
* Lancer Fin, $275m 6-year rumored
* CBA, benchmark bond rumored; JPM
* Reliance Holding, benchmark 2-part 10s/30s; BAML/Citi/HSBC/RBS
Federal Reserve Treasury Coupon Purchases: The Fed buys coupons in the 6 to 10 year sector. Of the $36.8 billion spent so far in the MBS prepayment reinvestment program, $12.2 billion has been allocated to the 6-10 year sector. On September 20, the Fed reinvesteed $5.2 billion into these maturities.
MBS Market Alerts
