US tsys opening lower, US 10Y 1.84, curve steeper after ADP came in above exp (214K vs 190K) thou Jan was revised lower. Tsy 10Y futures confined to narrow range most of the o/n session with weaker bias as. European stocks higher for a 5th day, Crude -1.3% on API inventory data. Asian stocks sharply higher – Australia Q4 GDP rose 0.6% vs 0.4% exp. Euro continues to weaken on the back of expected ECB stimulus at next Thursday’s meeting. Core European bonds lower on better Aussie & Swiss (Q4 GDP) data, yet bunds recovered losses & curve steepened on German 5Y auction which came at lowest yield on record -0.36%. GOCs lower, curve ~1bp steeper – this aft the BOC auctions $400mln in 2047 RRBs. 30Y breakevens have rallied over the past month by ~15bps and at 140bps are sitting at two month highs – yet this is still ~ 60bps lower than the 2.0% headline & core inflation rate. Provis opening another 1bp tighter, Ont 46 118.5/118, Ont 25s 108.5/108 – rumoured supply yest did not materialize so today we expect Ont , Sak , Mani to take advantage of good mkt conditions. Yest Choice Properties came with 7Y & 30Y bond @ 216 & 325 – both of which we did not view as large enough concessions for a high beta BBB corp. The bonds broke 3bps tighter on the break.
- Coeure Says ECB Watching Impact of Negative Rates on Banks (Bloomberg) The European Central Bank is monitoring the risk that negative rates will hurt bank profitability while sticking to its commitment to deliver price stability first, Executive Board Member Benoit Coeure said. “We are well aware of this issue,” Coeure said in a speech in Frankfurt on Wednesday. “We are studying carefully the schemes used in other jurisdictions to mitigate possible adverse consequences for the bank lending channel. But I also think we need to qualify the narrative that banks’ challenges flow largely from our monetary policy.”
- How `Brexit’ Puts European Institutions at Risk of Downgrade (Bloomberg) The consequences of a “leave” vote in the U.K.’s June 23 referendum on its European Union membership may spread beyond Britain’s shores, according to Societe Generale SA. While the U.K.’s assets will depreciate should the nation vote to sever a more-than-40-year-alliance with the continent, its close links to the rest of the bloc’s financial entities also leave the EU vulnerable. The EU’s ratings could suffer and the European Investment Bank, which helps provide financing for projects in the region, is “particularly at risk” in the event of a “Brexit,” Cristina Costa, a Paris-based analyst at SocGen wrote in a note to clients.
- U.S. Index Futures Pare Declines With Crude Before ADP Jobs Data (Bloomberg) U.S. index futures were little changed after trimming declines with crude oil, following a surge in shares Tuesday that sent the Standard & Poor’s 500 Index to an almost two-month high. Contracts on the S&P 500 expiring in March fell 0.2 percent to 1,975 at 7:53 a.m. in New York. In yesterday’s votes, Donald Trump and Hillary Clinton solidified their positions in the race to their parties’ presidential nominations. Dow Jones Industrial Average futures lost 0.1 percent to 16,825. West Texas Intermediate crude futures declined 1.4 percent, trimming an earlier 2.5 percent slide. A gauge of growth in February private payrolls is due at 8:15 a.m.
- Moody’s cuts China outlook on eve of NPC, cites reform, fiscal risks (Reuters) Moody’s downgraded its outlook on Chinese government debt to « negative » from « stable » on Wednesday, citing uncertainty over authorities’ capacity to implement economic reforms, rising government debt and falling reserves. The Moody’s downgrade comes just days before the National People’s Congress (NPC) is due to vote on China’s 13th five year plan, a closely held development blueprint for the next five years, which policymakers began formally drafting in 2015.
- Japan PM Abe adviser: G20 statement not a restriction on BOJ (Reuters) The Group of 20’s agreement that monetary policy alone cannot lead to balanced growth does not place any restrictions on the Bank of Japan’s ability to expand its negative interest rate policy, an adviser to Japan’s prime minister said on Wednesday. The BOJ should calmly study the impact of its negative rate policy, which came into effect last month, when deciding its next move, Masahiko Shibayama told Reuters in an interview.
- Oil below $37 as U.S. inventory rise counters output freeze plan (Reuters) Oil edged further below $37 a barrel on Wednesday as an industry report showing a rise in U.S. crude stockpiles to a new record countered support from producer efforts to tackle a supply glut. U.S. crude inventories jumped by 9.9 million barrels last week, the American Petroleum Institute (API) said on Tuesday, much more than the 3.6-million-barrel increase analysts had forecast.
- Oil price slide casts shadow over Canada’s banks, despite solid quarter (Financial Post) Canada’s big banks wrapped up the first quarter of the fiscal year with increased profits and widely expected dividend hikes. But the early impact of the oil rut was evident, with increased provisioning and reports of growing credit card and loan delinquencies in the hardest hit provinces, primarily in Western Canada.
- Overview: US 10yr note futures are down -0.1447% at 129-13, S&P 500 futures are down -0.29% at 1972.25, Crude oil futures are down -1.22% at $33.98, Gold futures are up 0.12% at $1232.3, DXY is up 0.14% at 98.493.
US Economic Data
- MBA Mortgage Applications growth was -4.8%, up 0.5% from prior week
- ADP Employment Change was released at a level of 214K, beating the estimate by 24k and up 21k from prior month
- ISM New York will be released at 9:45 AM
- S. Federal Reserve will release Beige Book at 2:00 PM
Canadian Economic Data
- There is no major economic data 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