Market Update Tsys trading firmer, near highs of session on heavy volume (667k TY), curve steeper led by the 5Y10Y 2.834 (-0.7bps). EGBs higher amid talk of asset allocation trades out of stocks as European stocks are down 1.3%, crude down another 0.65 @ 65.09. Bunds higher outperforming tsys, 10Y tsy/bund spd above 210 for the first time since last April, despite better than exp Eurozone/German Markit Service PMI. GOCs lower,~1.5bps wider vs tsys, 10Y 2.37%. Provis 0.5bps wider, Ontario longs trading down @ 69.5. Overall spreads have held in fairly well considering the volatility in rates.
News headlines
Stock Selloff Deepens; Dollar Steady as Gold Gains: Markets Wrap (Bloomberg) Global stocks extended the biggest selloff since 2016, with European and Asian equities slumping and futures pointing to another leg down for U.S. share at the open. Treasuries and the dollar stabilized while oil fell and gold rose. Futures for both the S&P 500 Index and Dow Jones Industrial Average dropped, signaling more losses to come. The Stoxx Europe 600 Index retreated for a sixth day in the longest losing streak since November, following similar moves across Asia as both regions took their cue from the U.S. rout on Friday. Yields on core government bonds in Europe fell, and those of 10-year Treasuries also edged lower. The pound slumped after data and the yen gained with so-called safe-haven assets.
How Spiking Bond Yields Could Topple a Stock Market Rally (Bloomberg) You may have heard: bond yields are surging. It’s sowing extreme angst in U.S. equities, which last week fell the most in two years. And though the tumble in the S&P 500 may be nothing but a breather, concern is mounting that the Treasury market’s travails are becoming an inescapable portent for stocks. Selling resumed Sunday night as index futures opened lower, a week after yields on 10-year Treasuries climbed to a four-year high of 2.84 percent. Here are some thoughts on why that can be bad for equities.
Euro-Area Companies Boost Jobs as Output Nears 12-Year High (Bloomberg) Economic momentum in the euro area surged to the fastest pace in almost 12 years, pushing firms to pile on the most additional workers since the start of the millennium. A composite Purchasing Managers’ Index rose to 58.8 in January from 58.1 in December, IHS Markit said. That unexpectedly beat the previous flash estimate of 58.6, with the revision driven mainly by better-than-expected momentum in the service sector, led by Germany.
Merkel, SPD Push Ahead in Government Talks After Missed Deadline (Bloomberg) German Chancellor Angela Merkel resumed talks Monday on extending her government alliance with the Social Democratic Party, sending efforts to break the country’s political deadlock into overtime. With Merkel’s fourth term hanging in the balance, a Sunday target date for concluding a coalition pact came and went as the SPD sought concessions on labor and health-insurance rules. The prospects of a deal on Monday are “fifty-fifty,” Social Democrat lawmaker Karl Lauterbach, a key negotiator on health care, said on ZDF television.
Broadcom Raises Qualcomm Hostile Bid to About $121 Billion (Bloomberg) Broadcom Ltd. has raised its bid for Qualcomm Inc. to about $121 billion, in an attempt to force what could be the largest-ever technology deal. The new offer of $82 a Qualcomm share will be Broadcom’s final offer, according to a statement Monday. The deal would take the form of $60 in cash and the remainder in Broadcom shares.
Canada’s PM talks tough on NAFTA, repeats he could walk away (Reuters) Canadian Prime Minister Justin Trudeau took a tough line on NAFTA on Friday, repeating that he could walk away if he was not happy with talks to modernize a pact the United States contends needs major changes.
Scotiabank expects up to $6.5 billion excess capital by 2020 (Reuters) Bank of Nova Scotia expects to generate C$7 billion to C$8 billion ($6.5 billion) of excess capital by 2020, giving it the opportunity to return capital to shareholders or make acquisitions, its chief financial officer said.
‘Still early days’: Toronto housing braces for full impact of stress tests (BNN) Canada’s largest housing market has lived through its first month under new stress tests, and observers say while sales activity cooled dramatically in January it was far from a “dead market.” With some home purchases pulled forward into the final months of 2017 as buyers attempted to beat the Jan. 1 stress test deadline, Toronto’s market is being closely watched for signs of weakness.
Overnight markets
Overview: US 10yr note futures are up 0.155% at 120-30, S&P 500 futures are down -0.42% at 2745.25, Crude oil futures are down -0.66% at $65.02, Gold futures are up 0.18% at $1339.7, DXY is up 0.1% at 89.286, CAD/USD is up 0.01% at 0.8046.
| Cda Benchmarks | Yield | Tsy Benchmarks | Yield |
| 2 Year | 1.849% | 2 Year | 2.133% |
| 5 Year | 2.131% | 5 Year | 2.568% |
| 10 Year | 2.368% | 10 Year | 2.834% |
| 30 Year | 2.454% | 30 Year | 3.089% |
US Economic Data
| 9:45 AM | Markit US Services PMI, Jan est 53.3 (53.3 prior) |
| Markit US Composite PMI, Jan (53.8 prior) | |
| 10:00 AM | ISM Non-Manf. Composite, Jan est 56.7 (55.9 prior) |
| 02/05-02/09 | MBA Mortgage Foreclosures, 4Q (1.23% prior) |
| Mortgage Delinquencies, 4Q (4.88% prior) |
Canadian Economic Data
| 10 :00 AM | Bloomberg Nanos Confidence, Feb 2nd (59.1 prior) |
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, Hugues Savard
Institutional Bond and Equity Desk
CTI Capital Valeurs Mobilières Inc.
Tel : (514)-861-0240
Fax: (514)-861-3230