Prices gain after weak manufacturing data; Fed eyed

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U.S. Treasury prices gained on Monday after data showing manufacturing activity in New York state plunged to its weakest level in August since 2009, raising concerns the weakness may weigh on broader U.S. economic growth indicators.

The New York Fed's Empire State general business conditions index tumbled from 3.86 in July to -14.92 in August, its lowest since April 2009, due to steep drops in new orders and shipments. Economists polled by Reuters had expected the index to rise to 5.00 this month. A reading above zero indicates expansion.

"Some people are talking about it in regards to what this means for the broader manufacturing indexes at the beginning of next month," said Thomas Simons, a money market economist at Jefferies in New York.

Benchmark 10-year note yields were last down 3 basis points to 2.17 percent, down from 2.18 percent before the data.


Slowing growth could complicate the Federal Reserve's ability to raise interest rates, which many economists and investors see as most likely to begin at the U.S. central bank's September meeting. Low inflation, which has worsened in recent weeks as oil prices continue to decline, is also problematic for the Fed. U.S. crude, or West Texas Intermediate (WTI), for September was trading 20 cents lower at $41.40 a barrel, close to its lowest level in more than six years.

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The next major focus for investors will be consumer price data for July, which is due on Wednesday morning. The Fed will also release minutes from its July meeting on Wednesday afternoon. Investors will evaluate the Fed minutes for any new signs that Fed members were concerned about low inflation, even before the more recent decline.

They will also look for new information on how the Fed sees global risks to the economy, though the minutes won't capture last week's surprise devaluation of the Chinese yuan.

"The China devaluation story has only developed in the last week or so, and things in general were different when the meeting was going on," said Simons. "There was an acknowledgement in the FOMC statement about some of the global risks and people are going to be looking for further discussion on that."