cti2015header-morning comments web

Market Update

US tsys trading higher, yields ~3bps lower, 10Y 2.44%.  Euro govt bonds sharply higher led by 10Y gilts 8bps lower @ 1.36% after the BOE voted to leave rates unch, upgraded its forecast for growth for the second time since Brexit and now sees inflation above the 2.0% target sooner than in its Nov forecast. EGBS, tsys benefitting from dovish FOMC yest & FTQ bid after latest Trump tweets on Iran.  Yesterday saw tsy prices rally after the FOMC statement with few substantive changes thou the Fed did mention that inflation ‘will rise to 2% instead of is ‘expected to rise…” The Fed decided to ignore the upward trend in survey based expectations of inflation as measured by 10Y TIPs as market based indicators such as core PCE & CPI are well below the Fed’s 2.0% target. Importantly there was no mention of reduction in the balance sheet, the statement reiterating existing policy to reinvest principal from its agency & tsy holdings. GOCs higher, curve 1.5bps flatter led by 10Y @1.73%, with the BOC scheduled to auction $3.9bln in new 2Y May 19s at noon. The WI roll is quoted at 5.9/5.8 (vs Feb 19s) which implies a yield of ~0.818% and represents 18.5% of the 2s/5s curve and is consistent with  the ~2.3bp steepening in the benchmark 2Y roll (Feb19/Nov18) since the last auction on Jan 11th. Yet viewed against a 2s/5s curve which has narrowed 2 bps since the last 2Y auction the WI & benchmark 2Y rolls would appear attractive. Provis well bid, Ont 26s trading up at 76.5 – the province’s borrowing program for the current FY is complete after yest $2.5bln USD 5Y deal. Quebec/Ont 10Y spd steady at 2bps.

News headlines 

Dollar Falls as Fed Path Assessed; Stocks Retreat: Markets Wrap (Bloomberg) The dollar slumped against most of its major peers after the Federal Reserve gave dollar bulls little to be optimistic about after the worst January in 30 years. Global equities slid as investors scrutinized mixed earnings from corporate heavyweights.

BOE Sees Stronger Growth as Some Officials Flag Inflation Unease (Bloomberg) The Bank of England upgraded its forecasts for the economy for the second time since the Brexit vote and revealed that some policy makers have become more concerned about accelerating inflation.

Oil up as OPEC cuts outweigh rise in U.S. stocks (Reuters) Oil prices rose on Thursday as evidence that OPEC and other big exporters were cutting production outweighed a sharp rise in U.S. crude and gasoline stockpiles. Brent crude was up 50 cents at $57.30 a barrel by 1145 GMT after settling up $1.22 in the previous session. U.S. light crude gained 30 cents to $54.18 after climbing by $1.07 on Wednesday.

Yellen Eyes Commercial Real-Estate Froth as Fed Weighs ’17 Risks (Bloomberg) A decade after the U.S. housing market collapsed, Federal Reserve officials are watching rising apartment towers as the next potential asset-price bubble, which could add to the debate about the pace of interest-rate hikes this year.

Quebec regulator floats binary-option ban, citing rampant scams (TheGlobeandMail) Quebec’s securities regulator is proposing to ban the sale of short-term binary options to the general public, saying the securities are being used in scams. The Autorité des marchés financiers said Wednesday that it is proposing an outright ban after issuing several warnings to the public about the risks of investing in binary options and seeing fraud continue to emerge.

BCE Inc hikes dividend after earnings climb 30 per cent (Financial Post) BCE Inc. says its common share dividend will be increased by 5.1 per cent this year, starting with the first quarterly payment on April 15, following an improved profit in the fourth quarter and 2016 as a whole. The Montreal-based company, which owns Bell Canada, Bell Aliant and media companies including CTV, says its net income attributable to common shareholders was $657 million in the fourth quarter or 75 cents per share.

Overnight markets 

Overview: US 10yr note futures are up 0.2262% at 124-20, S&P 500 futures are down -0.24% at 2269, Crude oil futures are up 0.45% at $54.12, Gold futures are up 1.58% at $1227.4, DXY is down -0.36% at 99.286, CAD/USD is down -0.44% at 0.7697.

US Economic Data

7:30 AM Challenger Job Cuts, y/y, Jan, -38.8% (prior 42.4%)
8:30 AM Nonfarm Productivity, 4Q P, 1.3%, est. 1.0% (prior 3.1%, revised 3.5%)
  Unit Labor Cost, 4Q P, 1.7%, est. 1.9% (prior 0.7%, revised 0.2%)
  Initial Jobless Claims, Jan 28th, 246k, est. 250k (prior 259k, revised 260k)
  Continuing Claims, Jan 21st ,  2064k, est. 2063k (prior 2100k, revised 2103k)

Canadian Economic Data 

There is no major economic data release for today.


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