Market Update

Tsys weaker, giving up early gains which saw the 10Y reach as low as 2.64% and then reverse back to 2.76% – now ~2.73% on 5x avg volume in TY futures (>1.6MM contracts). Risk off tone as global equity selloff continues, Europe down 2%, S&P futures -26 – well off overnight lows, while the USD is stronger for a second day, the DXY reversing losses to trade at weekly high.  The volatility spike also continuing , the VIX index 49.21 after lingering below 15 since August. 

News headlines

U.S. Stocks Sink Most Since 2011 as Rout Deepens: Markets Wrap (Bloomberg) U.S. stocks plunged the most in 6 1/2 years, with the Dow Jones Industrial Average sinking more than 1,100 points, as the equity selloff reached a fever pitch amid rising concern that inflation will force interest rates higher. Treasuries rallied and gold rose on haven demand.

Volatility Jump Has Traders Asking About VIX Note Poison Pill (Bloomberg) The Cboe Volatility Index’s biggest rally ever is raising thorny questions about the future of exchange-traded products tied to the gauge. An ETP meant to mirror moves in the front of the VIX’s futures curve plunged more than 75 percent in after-hours trading following an 80 percent spike in contracts that comprise its underlying index during the trading day, potentially putting in play triggers that would enable the fund’s owners to liquidate it to avoid losses.

U.S. Stock Rout Has Fed Interest-Rate Signals Edging Lower (Bloomberg) Traders are signaling that the abrupt pullback in high-flying risk assets is likely to weigh on interest-rate policy as Federal Reserve Chair Jerome Powell takes the helm. That’s the story from Eurodollar futures, where the spread between December 2018 and 2019 contract yields fell by three basis points Monday, the most this year. The move indicates reduced wagers on interest-rate increases next year as the S&P 500 posted its worst rout since 2011 after a painful slide last week. The market-implied odds of an interest-rate increase in the second, third and fourth quarters of 2018 also edged lower on Monday.

Oil Declines to Two-Week Low as Global Stock Rout Deepens (Bloomberg) Oil slid to a two-week low and headed for its longest losing streak in two months as a plunge in U.S. equities dragged other markets lower. Crude futures in New York fell a third day, sliding as much as 1.3 percent. Stock indexes from Japan to Germany tumbled on Tuesday after a frantic sell-off in U.S. shares sent the Dow Jones Industrial Average to its biggest loss in 6 1/2 years. Nonetheless, oil market conditions look “solid” thanks to production cuts by OPEC, according to Vitol Group, the world’s largest independent energy trader.

Bitcoin Dips Below $6,000 as Cryptocurrency Exodus Accelerates (Bloomberg) The rout in cryptocurrencies rolled on, sending Bitcoin to its lowest level since October, as worries over tighter regulation by U.S. authorities and central bankers elsewhere gave traders fresh reasons to sell after a brutal start to 2018. The selloff has now knocked more than half a trillion dollars from digital coins since early January. That’s shaken a nascent market whose core attraction — anonymity and decentralization — is being challenged as never before by regulators.

Toronto home sales drop 22 percent in January, but prices have steadied (Reuters) Home sales in Toronto fell 22 percent in January from a year earlier as rising interest rates and tighter mortgage rules weighed on demand, but prices have stabilized as stubborn sellers and tight supply kept the correction in check.

WestJet’s revenue rises 10 percent as passenger traffic grows (Reuters) Canada’s second largest airline said on Tuesday revenue passenger miles — a measure of passenger traffic — rose 8.8 percent to C$6.33 billion ($5.05 billion) in the quarter ended Dec. 31. WestJet has worked on growing its fleet and attracting more customers as it locks horns with rival Air Canada.

Jerome Powell sworn in as chairman of Federal Reserve (CBC) Jerome Powell has been sworn in as the 16th chairman of the Federal Reserve in a brief ceremony in the Fed’s board room. In a short video message, Powell pledged to « support continued economic growth, a healthy job market and price stability. » Powell took the oath of office from Randal Quarles, the Fed’s vice-chairman for supervision, in a ceremony that was attended by Fed staff and Fed board member Lael Brainard.

Overnight markets

Overview: US 10yr note futures are up 0.49% at 121-28, S&P 500 futures are down -0.2% at 2602.5, Crude oil futures are down -1.26% at $63.34, Gold futures are up 0.1% at $1337.9, DXY is up 0.3% at 89.82, CAD/USD is up 0.14% at 0.7964.

Cda Benchmarks Yield Tsy Benchmarks Yield
2 Year 1.793% 2 Year 2.028%
5 Year 2.066% 5 Year 2.445%
10 Year 2.308% 10 Year 2.721%
30 Year 2.441% 30 Year 3.019%

US Economic Data

8:30 AM Trade Balance, Dec -53.1b est -52.1b (-50.5 prior)
10:00 AM JOLTS Job Opening, Dec est 5961 (5879 prior)

Canadian Economic Data

8:30 AM Int’l Merchandise Trade, Dec -3.19b est -2.32b (-2.54b prior)
10:00 AM Ivey Purchasing Managers Index SA, Jan (60.4 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