cti2015header-morning comments web

Market update

US tsys higher with 10Y 1.823 (-2bps) before Ism Man at 10:00. German bunds higher, flatter on lower crude and ‘risk off’ following the latest OECD economic outlook. The OECD warned over risk from ‘Brexit’, cutting its forecast for 207 & 18 by 0.5% and 2019 by 1.5%.  UK gilts are higher led by the 5Y, short sterling strip 5-8 ticks following OECD report.  GOCs are unch, long RRB at noon, reopening of the 1.25 Dec 2047 bond for $700mln. L.t. breakevens have fallen 10bps since reaching highs in April at ~165 bps, basically matching weakness in US bkevens despite firmness in crude over the period, 2044 bkevens are 152/153 this morning, with the 47/44 roll at 0.7bps. Positive carry for the next couple of months favors real yield steepeners however – i.e. s.t. RRB 21s have a much better carry profile over the next two months (~6bps) than 44s/47s.  Provi spreads 1bp wider, Ont 46s 104/103 (103 at issue yest ) , of note long ontario yields are at new lows  for the year, the lowest sine last August – spds have remained firm going  into the June extension/cpn pmt even as cdas have rallied. TD is in the market with a 5Y C$ covered bond at ~97 bps or ~3bps thru their March 21 dep notes.

News headlines

  • S. Stock-Index Futures Drop After S&P 500’s Third Monthly Gain (Bloomberg) U.S. stock-index futures fell, after S&P 500 capped its longest monthly rally since 2014, as investors awaited a report that may show manufacturing grew at a slower pace in the world’s biggest economy. Contracts on the S&P 500 expiring in June lost 0.4 percent to 2,087.25 at 7:21 a.m. in New York. The benchmark closed little changed yesterday, capping its longest stretch of monthly advances since June 2014. Dow Jones Industrial Average futures dropped 69 points, also 0.4 percent, to 17,705 today.
  • Oil falls as OPEC expected to shun any output curbs (Reuters) Oil prices fell on Wednesday on expectations of OPEC inaction on output as its focus stays on retaining market share, while concerns about China’s economy weighed on the demand outlook. Brent crude LCOc1 was at $49.19 per barrel at 1116 GMT (7.16 a.m. ET), down 70 cents. It earlier fell more than $1 to the day’s low of $48.86. U.S. crude futures CLc1 were down 74 cents at $48.36 a barrel.
  • China’s factories steadying but weak, hopes for quick recovery fade (Reuters) China’s manufacturing activity showed signs of steadying in May but remained weak amid soft demand at home and abroad, suggesting the world’s second-largest economy is still struggling to regain traction. A rebound in March had raised hopes that China’s economy was reviving, breathing life into global financial and commodity markets, but analysts said the soggy activity readings and weak April data suggest no quick recovery is in sight.
  • Saudis Said to Seek Restoration of OPEC Unity After Doha Failure (Bloomberg)  Saudi Arabia will use this week’s OPEC meeting to repair relationships with fellow producers after the failure of an April accord to freeze crude output in Doha, according to people familiar the matter. Saudi Arabia’s Minister of Energy Khalid Al-Falih will reassure other members his nation won’t flood the oil market and may be open to the reintroduction of an overall production target for the group, the people said, asking not to be identified because information is not public. There’s no indication that Saudi Arabia is seeking to change current production volumes, they said.
  • Japan PM delays sales tax hike, puts fiscal reform on back burner (Reuters) Japanese Prime Minister Shinzo Abe announced on Wednesday his widely expected decision to delay a scheduled sales tax increase by two-and-a-half years, putting his plans for fiscal reforms on the back burner due to growing signs of weakness in the economy. While the decision may help Abe win votes at an upper house election on July 10, it could fan doubts about his plans to curb Japan’s huge public debt and fund ballooning social welfare costs of a fast-ageing population.
  • OECD cuts Canada’s outlook, warns Brexit, refugee crisis threaten global growth (Financial Post)  The Organization for Economic Cooperation and Development is increasingly pessimistic about the global economy and is warning that the “low-growth trap” will continue if governments don’t change tack on spending and trade. Overall, the OECD is forecasting global growth of three per cent this year and 3.3 per cent next year. Both are down 0.3 percentage point from its November outlook. It’s estimating Canada’s gross domestic product will grow by 1.7 per cent this year and 2.2 per cent in 2017. That’s down from the OECD’s November estimate of 2.0 per cent growth in Canadian GDP in 2016 and 2.3 per cent in 2017.
  • Bombardier offered C Series stake for a ‘song,’ Airbus executive says (GlobeAndMail) Bombardier Inc. offered rival Airbus Group SE an investment in its C Series plane program for a “song,” Airbus sales chief John Leahy said, as he provided a glimpse into talks that broke down last October after they were leaked to the media. Speaking on Monday to a group of reporters at an Airbus event in Hamburg, Germany, Mr. Leahy said Airbus seriously considered the offer, according to an
  • Chinese State-Run Bank Reveals Details of Yuan Fixing Mechanism (Bloomberg) A Chinese state-run bank has revealed the inner workings of the yuan’s reference rate mechanism, including details on the lenders that provide prices as well as how the system was tweaked following market turmoil in January. The 14 contributors, which must consider the previous day’s yuan closing price price, have to take into account movements in baskets of currencies and have the leeway to consider the effects of client supply and demand, said Sun Wei, deputy general manager of financial markets at China Citic Bank Corp., a unit of China’s largest state-run financial conglomerate. He added that the People’s Bank of China spoke with lenders in February before standardizing the system.


Overnight markets

  • Overview: US 10yr note futures are up 0.1205% at 129-27, S&P 500 futures are down -0.44% at 2085.75, Crude oil futures are down -1.36% at $48.43, Gold futures are up 0.19% at $1219.8, DXY is down -0.5% at 95.413.

US Economic Data 

  • 9:45 AM: Markit US Manufacturing PMI, May F, est. 50.5 (prior 50.5)
  • 10:00 AM: ISM Manufacturing, May, est. 50.3 (prior 50.8)
    • ISM Price Paid, May, est. 58.5 (prior 59.0)
    • ISM New Orders, May, (prior 55.8)
    • Construction Spending, m/m, April, est. 0.6% (prior 0.3%)
  • 14:00 AM: US Federal Reserve Releases Beige Book

 Canadian Economic Data 

  • 9:30 AM:  RBC Canadian Manufacturing PMI, May, (prior 52.2)



Disclosure and Disclaimer

The following sources of information have been, or may have been, used partially or in their entirety to compile the herein provided CTI Capital Securities Inc. (“CTI Capital”) ‘Morning Comments.’ CTI Capital believes these sources to be generally reliable, however, as said sources are varied and from third parties, CTI Capital cannot guarantee the accuracy or completeness of said information: Canadian Press (CP); Bloomberg News (BN); Wall Street Journal (WSJ); Stone & McCarthy Research Associates (SMRA); New York Times (NYT); Financial Times (FT); Market News International (MNI); Globe and Mail; Associated Press (AP); CNW Group (CNW); Reuters; Business News Network (BNN); Market Watch; and others.

Ivan Greenstein, Stephan Buu, David Leclair-Legault

Institutional Bond and Equity Desk
CTI Capital Valeurs Mobilières Inc.

Tel : (514)-861-0240
Fax: (514)-861-3230