Market Update
– US tsys slightly higher in NA trade, US 10Y 1.685 (-0.3bps), mostly ignoring the small miss in the ADP empl (154k vs 165k exp). Tsys firmer in Asia yet fell after Fed Evans said he was ‘comfortable’ with rate hikes this yr. Tsys also pressured on the back of lower bunds on latest ECB ‘taper tantrum fears’ & higher crude (49.60 + 1.9%). Short tsys lagging on higher 3M libor set, +.00036 at 0.8679%. GOCs higher, outperforming tsys ~1bp in 10s, despite news exports rose for a third month in August, with the trade deficit falling to $1.9bln from $2.2bln in July. BOC auction at noon – $3.8bln in new March 2022s with the WI/5Y roll at 4.9bps this morn, which seems cheap given the J22/5Y roll is barely 0.3bps higher at 5.3bps. The benchmark 2s5s curve has steepened ~4bps over the week, yet this wouldn’t account for the ~1.5bp cheapening in the WI roll over the period. Other old 5Y rolls (i.e. Sep21/Mar21) are closer to 3bps. Provis opening 0.5bps wider on the bid, after closing 0.5bps better on higher Cda yields, lack of supply.
News headlines
–European Stocks Fall With Emerging Markets on Central Bank Angst (Bloomberg) European stocks fell with emerging markets as the prospect of monetary policy turning less accommodative in the world’s biggest economies damped appetite for higher-yielding assets. The Stoxx Europe 600 Index dropped for the first time in seven days and the MSCI Emerging Markets Index halted a two-day rally after Bloomberg News reported an informal consensus was building in the European Central Bank that quantitative easing will need to be tapered once a decision is taken to end the program.
–Oil hits highest since June on possible U.S. inventory drop (Reuters) Oil rose towards $52 a barrel on Wednesday, hitting its highest since June, supported by an industry report that U.S. inventories probably fell for a fifth straight week and OPEC’s deal to cut supply. The American Petroleum Institute (API) said on Tuesday that U.S. crude inventories dropped 7.6 million barrels, which would be the fifth straight weekly decline if confirmed by U.S. Energy Information Administration (EIA) data on Wednesday. [API/S]
–Gold drops below US$1,300 as central bank tightening looms (Financial Post) Gold slipped below US$1,300 an ounce Tuesday, surrendering all the gains it had made since the surprise Brexit vote in June sent it on a rally. Bullion’s capitulation came alongside a “day of setbacks” for gold miners, with Barrick Gold Corp. announcing a longer suspension of operations at its Argentina mine and Goldcorp Inc. shutting down a mine in Mexico after a week-long blockade.
–Fed’s Evans “fine” with Dec hike if data stays firm (Reuters) Chicago Federal Reserve Bank President Charles Evans said he would be “fine” with raising U.S. interest rates by year end if U.S. economic data continued to come in firm, though any further moves would need to see inflation accelerating.
–BOJ Kuroda: interest rates would rise when 2 percent price goal is met (Reuters) Bank of Japan Governor Haruhiko Kuroda said on Wednesday that interest rates would rise when the central bank’s 2 percent inflation target is achieved although it’s unlikely borrowing costs would increase anytime soon.
–Global Banks Fight Back on Brexit, Warning $51 Billion at Stake (Bloomberg) Britain crashing out of the European single market could cost banks and associated businesses in the U.K. almost 40 billion pounds ($51 billion) in lost revenue, undermining a key sector of the economy, an industry report warned on Tuesday.
Overnight markets
–Overview: US 10yr note futures are down -0.0718% at 130-13, S&P 500 futures are up 0.22% at 2149.5, Crude oil futures are up 1.93% at $49.63, Gold futures are up 0.53% at $1276.4, DXY is down -0.04% at 96.133.
US Economic Data
-8:15 AM: ADP Employment Change, Sep, 154k, est. 165k, (prior 177k, revised 175k)
-8:30 AM: Trade Balance, Aug, -40.7b, est. -39.2b (prior -39.5b)
Int’l Merchandise Trade, Aug, -1.94b, est. -2.45b (prior -2.49b, revised -2.19b)
-9 :45 AM: Markit US Service PMI, Sep F, est. 51.9 (prior 51.9)
Markit US Composite PMI, Sep F, (prior 52.0)
-10:00 AM: ISM Non-Manufacturing Composite, Sep, est. 53.0 (prior 51.4)
Factory Orders, Aug, est. -0.2% (prior 1.9%)
Factory Orders Ex Trans, Aug, (prior 0.2%)
Durable Goods Orders, Aug F, est. 0.0% (prior 0.0%)
Durables Ex Transportation, Aug F, (prior -0.4%)
Cap Goods Orders Nondef Ex Air, Aug F, (prior 0.6%)
Cap Goods Ship Nondef Ex Air, Aug F, (prior -0.4%)
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
Fax: (514)-861-3230