cti2015header-morning comments web

Market update

US tsys opening sharply higher thou off the highs after a much stronger than exp ADP (257k vs 195k), curve ~3bps flatter & US 10Y below 2.2% (2.193 -4.5 bps). Risk off tone o/n amid North Korea test, weak China PMI (50.2 vs 51.2). China equities actually rose on new rules on selling shares by institutions, but pressure on US futs on higher CNY fixing, 22 bps to the lowest lvl since apr 2011. GOCs higher, spds unch vs tsys except in longs which are lagging by ~1.5bps as the belly of the GOC curve outperforms. The BOC auctions 2Y notes at noon, reopening of the Feb 18s with the 2Y roll -0.4bps, 2Y yields ~10 bps lower since last auction Dec 9th while Cda/US ~4bps off recent Oct GDP wides @ -56bps. Provis only 0.5bps wider , Ont 25s 96.5 vs 96.

News headlines

  • North Korea says it successfully conducts hydrogen bomb test (CNN) North Korea says it has successfully tested a “miniaturized” hydrogen bomb. The Democratic People’s Republic of Korea announced the test on state TV hours after South Korea reported that an artificial earthquake had occurred 30 miles north of the DPRK’s nuclear-testing center. Some experts are skeptical of the claims, however, suggesting that North Korea’s state-run television likes to exaggerate or outright lie. In response to the news, the South Korean won weakened 0.8% to 1,197.20 per dollar, a near 5-1/2-year low.
  • Brent crude oil slides below $35 for first time since 2004 (FT) Oil continued its volatile start to 2016 with Brent crude falling below $35 a barrel for the first time in more than a decade, surpassing lows reached in December as a seemingly relentless rise in global production overshadowed all other concerns. A rift between Saudi Arabia and Iran over the execution of a prominent cleric saw Brent, the international oil benchmark, reach almost $39 a barrel on Monday. But the rally was shortlived as the focus of traders and investors returned to the supply glut that has driven oil prices down 70 per cent since the middle of 2014.
  • Valeant Names Howard B. Schiller Interim CEO (PR Newswire) Valeant Pharmaceuticals International, Inc. (NYSE: VRX) (TSX: VRX) today announced that Howard B. Schiller has been appointed interim chief executive officer of Valeant, effective immediately. Mr. Schiller served as Valeant’s chief financial officer from December 2011 through June 2015 and currently serves on Valeant’s Board of Directors. Valeant also announced that Robert Ingram, Lead Independent Director, will serve as interim chairman of the Board of Directors. J. Michael Pearson remains in the hospital where he is being treated for severe pneumonia, and as the timing of his expected return is uncertain, he will be on a medical leave of absence until further notice.
  • ADP Says Companies in U.S. Added 257,000 Workers in December (Bloomberg) Companies added more workers than projected in December, indicating the U.S. job market had momentum as 2015 came to a close, according to a private report based on payrolls. The 257,000 increase in employment followed a revised 211,000 rise in the prior month, figures from the ADP Research Institute in Roseland, New Jersey, showed Wednesday. The median forecast of economists surveyed by Bloomberg called for an advance of 198,000.
  • China Loses Its Grip on the Yuan (WSJ) China’s central bank set off heavy selling in the yuan Wednesday when it guided the currency to a fresh five-year low, sending it to its weakest level on record in offshore markets. The acceleration in the decline both within China and offshore comes as Chinese stocks fall sharply. The yuan’s unexpectedly rapid fall is the latest evidence investors are losing confidence in Beijing’s ability to cope with recent market turbulence.
  • Euro Area Set for Robust 2016 Growth as Orders Fuel Hiring (Bloomberg) The euro area has entered a year of solid economic growth that may see companies expanding capacity to meet increasing demand, Markit Economics said. A Purchasing Managers’ Index for manufacturing and services unexpectedly rose to 54.3 in December from 54.2 in November, compared with a Dec. 16 estimate for a drop to 54, the London-based company said. The data suggest growth in the final quarter of 2015 was the fastest in 4 1/2 years, according to the report.

Overnight markets

  • Overview: IG25 5Y 92.746/93.263 (+0.21), US 10yr note futures are up +0.26% at 126-18+, S&P 500 futures are down -1.65% at 1978.5, Crude oil futures are down -3.36% at 34.76$, Gold futures are up +0.58% at $1084.80, DXY is up +0.02% at 99.407.

US Economic Data

  • The Mortgage Bankers Association (MBA) reports applications were down 27% for the week ending January 1 from two weeks earlier. The most recent week’s results include an adjustment to account for the New Year’s Day holiday, while the previous week’s results were adjusted for the Christmas holiday.
  • ADP Private sector employment increased by 257,000 jobs from November to December vs 198K Expected
  • Trade Balance above forecasts ($-44B) in November: Actual ($-42.4B)
  • Markit Services PMI Final for Dec: Prior 53.7 will be released at 10ham
  • Markit Composite Final PMI for Dec: Prior 53.5 will be released at 10ham
  • ISM Non-Manufacturing PMI for Dec: Expected 56.0; Prior 55.9 will be released at 10ham
  • Durables ex-defense, for Nov: Prior -1.5 pct will be released at 10ham
  • Durable goods for Nov: Prior 0.0 pct will be released at 10ham
  • Factory orders mm for Nov: Expected -0.2 pct; Prior 1.5 pct will be released at 10ham

Canadian Economic Data

  • Canada’s merchandise trade deficit was narrower than economists forecast in November with shipments of automobiles and metals leading the first export gain in four months.The deficit of $1.99-billion followed an October shortfall that was pared to $2.49-billion from the initial reading of $2.76-billion, Statistics Canada said Wednesday in Ottawa. Economists surveyed by Bloomberg forecast a November deficit of $2.6-billion, based on the median of 15 estimates.


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, Pierre-Olivier Boulanger
Institutional Bond and Equity Desk
CTI Capital Valeurs Mobilières Inc.

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