Tsys sharply higher yields ~5bps lower after very weak non-farm payrolls, ten year yields back to the lower end of three month range @1.73%, the short end seeing good volume50% odds of a rate hike in July. Core Euro bonds higher led by 30Y bunds after the Bundesbank cut its forecast for growth and inflation, the latter from 1.1% to 0.2% for this year and 1.5% from 2.0% for 2017, even as the central bank described the economy as ‘fairly robust’. The German 10Y traded below 0.10% for the first time since April 8th following the release of much weaker than expected Eurozone retail sales for April (unch vs 0.4% exp). Provis opening 1-1.5bps wider, giving back gains from yest impressive rally, spds are still ~3bps lower on the week, all in yields the lowest in a year.
- Stocks Upbeat Before Jobs Data as Crude Gains Boost Commodities (Bloomberg) From stocks to commodities, financial markets are heading toward the monthly U.S. payrolls report with a relative sense of optimism. Shares rose in Europe and Asia after the S&P 500 Index closed at a seven-month high on Thursday. Commodities neared a bull market as Brent crude exceeded $50 a barrel, copper advanced and soybeans led crops higher. New Zealand’s dollar and Indonesia’s rupiah led gains among 31 major currencies.
- Brent crude oil holds above $50 on signs of rebalance (Reuters) Brent crude prices held around $50 a barrel on Friday on signs the market was moving back to more balanced supply and demand, and on an OPEC meeting viewed as supportive. “The worst was over,” Qatari energy minister Mohammed Al-Sada told reporters in Moscow. “The market is heading towards rebalancing.” The positive tone of the Organization of the Petroleum Exporting Countries (OPEC) meeting in Vienna on Thursday assuaged concerns over an intensified battle for market share between rivals Saudi Arabia and Iran.
- Commodities Stand on Brink of Bull Market After Oil’s Recovery (Bloomberg) Commodities are nearing bull-market territory after rebounding from the lowest level in at least 25 years as oil prices rallied, complementing advances in recent weeks in soybeans and zinc. The Bloomberg Commodity Index, which tracks returns from 22 raw materials, climbed 0.6 percent to 87.24 by 3:32 p.m. in Singapore on Friday. The gauge bottomed at a closing low of 72.88 in January, and a finish above 87.45 would mark a 20 percent advance, meeting the common definition of a bull market. The measure is still about 50 percent below the high reached in 2011.
- China May services growth cools to three-month low, hiring slows: Caixin PMI (Reuters) Growth in China’s services sector cooled to a three-month low in May as new business and hiring slowed, a private survey showed on Friday, echoing signs of fading momentum elsewhere in the economy. The Caixin/Markit services purchasing managers’ index (PMI) for May dropped to 51.2 from 51.8 in April. Readings above 50 indicate an expansion on a monthly basis, while readings below signal contraction.
- Fed likely to avoid rate hike before Britain votes on leaving EU (Reuters) The U.S. Federal Reserve may be forced to delay a rate hike at its June meeting because of mounting concern over the economic fallout from Britain’s vote on whether to leave the European Union. The geopolitical risk likely will push any rate increase until at least July, despite apparent consensus among Fed officials that a hike is warranted by stronger U.S. growth and tight labor markets. The Fed’s June 14-15 rate-setting meeting comes just a week before the British vote on June 23. A “leave” vote is expected to roil financial markets, cause credit spreads to widen, trigger a rush into safe assets and bolster the dollar.
- The G7 didn’t buy Trudeau’s big-deficit growth plan. Neither should we (Financial Post) Last week’s G7 meeting should give Prime Minister Trudeau reason to reflect on his plan for deficit spending. He arrived in Japan determined to sell other leaders on the merits of budgetary deficits to grow the economy. But his peers weren’t buying. The summit’s 14,000-word communiqué was silent on calls for more government spending. Why? Most of the other G7 leaders know that a “growth-friendly” agenda can’t be written in red ink. This is a powerful rejoinder to the Trudeau government’s plan to bolster the Canadian economy through deficit spending.
- Valeant gets another default notice from bondholders (Reuters) Troubled Canadian drugmaker Valeant Pharmaceuticals International Inc (VRX.TO) said it received another notice of default from bondholders for the delay in filing its first-quarter report. However, the company reiterated that it would file the report with U.S. and Canadian regulators on or before June 10, ahead of a July 31 deadline. Valeant has lost more than half its value since mid-March, after it said a delay in the filing of its annual report could put it at risk of a default on its borrowings.
- Overview: US 10yr note futures are up 0.7098% at 130-26, S&P 500 futures are down -0.44% at 2094.5, Crude oil futures are down -1.04% at $48.66, Gold futures are up 2.2% at $1239.3, DXY is down -1.04% at 94.571.
US Economic Data
- 8:30 AM: Change in Nonfarm Payrolls, May, 38k, est. 160k (prior 160k, revised 123k)
- Change in Manufacturing Payrolls, May, -10k, est. -2k (prior 4k, revised 2k)
- Unemployment Rate, May, 4.7%, est. 4.9% (prior 5.0%)
- Average Hourly Earnings, m/m, 0.2%, est. 0.2% (prior 0.3%, revised 0.4%)
- Average Hourly Earnings, m/m, 2.5%, est. 2.5% (prior 2.5%)
- 9:45 AM: Markit US Services PMI, May F, est. 51.4 (prior 51.2)
- Markit US Composite PMI, May F, (prior 50.8)
- 10:00 AM: ISM Non-Manf. Composite, May, est. 55.3 (prior 55.7)
- Factory Orders, April, est. 1.9% (prior 1.1%)
Canadian Economic Data
- 8:30 AM : Labor Productivity, q/q, 1 Q, est. 0.4% (prior 0.1%)
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