US Treasury prices trimmed early gains Thursday after hitting the highest levels since Sept. 5, which was the day before the disappointing August employment report. The 2-year again took a significant lead while the 30-year lagged by a notable margin, steepening the curve. The September Institute for Supply Management (ISM) non-manufacturing index (NMI) dropped 3.8 points to 52.6 against the expected 55.5 and the lowest since August 2016. The 30-year yield was near 2.05% versus a post-NMI 2.017% low, early 2.085% high and 2.088% close Wednesday. The 10-year yield was near 1.54% from a 1.51% low, 1596% high and 1.585% close. The 5-year yield was near 1.344% versus a 1.322% low, 1.43% high and 1.43% Tuesday. The 2-year yield was near 1.384% from a 1.372% low, 1.482% high and 1.484% close. The curve trade steepened with the 2- and 10-year yield spread near the widest since Aug. 1 at 15.6 from 11.3 while the 5- and 30-year yield gap was near 70.6 from 65.8. CME Group fed fund futures ran up the chance of another 25 basis point rate cut by the Oct. 29-30 Federal Open Market Committee (FOMC) meeting to 92.5% from 77% Wednesday and 49.2% Sept. 26. The odds of two more cuts by the Dec. 11 FOMC went to 53.3% from 38.6% and 18.9% a week ago. The probability the FOMC stays on hold until year-end FOMC dropped to 4% from 11.5% against 31.3% Sept. 25. Chair of the ISM Anthony Nieves said that the “past relationship between the [NMI] and the overall economy indicates that the [52.6 headline] corresponds to a [1.4%] increase in real gross domestic product on an annualized basis.” Saxo Bank’s Christopher Dembik said the ISM-NMI was “very disappointing. Manufacturing weakness contagion to the service sector. Key employment index is disastrous, falling at 50.4. Expect a big [nonfarm payrolls] miss tomorrow. Negative for market sentiment and Q3 GDP growth.” Analysts with Action Economics said that the ISM-NMI drop “could be an ominous recession signal based on the recent experience with the Great Recession. In September 2007, just before the official start of the downturn, the index had dipped to 52.6 from 52.7 in August, 53.6 in July, and 54.9 in June, with an average of 54.1 from January to June. Meanwhile, the index hit an all-time low of 37.8 in November 2008, with 8 of the 12 months that year below the 50 expansion/contraction line. The index was then sub-50 for 12 straight months from September 2008 through August 2009.” The Treasury will auction $38 billion 3-year notes Oct. 8, $24 billion reopened 10-year notes Oct. 9 and $16 billion reopened 30-year bond Oct. 10. There will also be $45 billion 3- and $42 billion 6-month bills on sale Monday with $28 billion 52-weeks Tuesday. The New York Fed did the standard $75 billion repo operations, which was again under subscribed at $33.55 billion, with $28 billion in Treasuries at a 1.80% stop rate. The September final Markit services index was in-line at 50.9 matching the preliminary estimate versus 50.7 in August. Initial jobless claims rose 4,000 to 219,000 in the week of Sept. 28 against 216,000 consensus. The headline rose 5,000 to 215,000 previously, which was revised from 213,000. The number marked a third consecutive weekly gain in claims. August factory orders slipped 0.1% in August, beating the 0.6% drop expected after rising 1.4% in July. Fed Vice Chair Richard Clarida on the economy and policy at 6:35 pm ET.
Constellation Brands (STZ) on Thursday reported better-than-expected second-quarter results as it raised its full-year earnings guidance despite warning it would like a $484 million loss over its investment in Canadian cannabis company Canopy Growth (CGC).
The Victor, NY-based wine and spirits company said it expects to post $9 to $9.20 per share in earnings for the year ending Feb. 29, up from its June guidance for $8.65 to $8.95. The consensus compiled by Capital IQ is for $8.54. Excluding Capital Growth, EPS was $2.91.
Constellation says it now expects wine and spirit sales to slide between 15% and 20% and operating income to fall 25%, up from its previous guidance for a 20% to 25% sales fall and a 25% to 30% drop in operating income. It maintained its outlook for 7% to 9% growth for beer net sales.
For the quarter ended Aug. 31, per-share earnings were $2.72, down from $2.87 from the prior-year period but ahead of the Street’s view for $2.62. Net sales rose to $2.34 billion from $2.3 billion, matching the Street’s consensus. Excluding Canopy Growth, EPS was $2.91.
“The winning streak for our beer business continues with Model Especial generating the most growth in the entire US beer category, while Corona remains the No. 1 high-end beer brand family,” said Chief Executive Bill Newlands, adding that Constellation’s “wine and spirits innovation pipeline is primed to launch impactful product introductions as we head into the key selling season this fall.”
Constellation reported a net loss of $54.7 million in the August quarter on its 2017 investment in Canopy Growth.
Net sales of beer rose 7% to $1.64 billion while wine sales fell 9% to $611.1 from the prior-year quarter.
Constellation said shipments of branded product, 24-pack and 12-ounce cases rose 5.3% to 91.9 million. Wine and spirits shipments in branded product and nine-liter cases fell 10% to 14.4 million.