Market Update
Post non farm :US tsys sharply lower after Dec payrolls fell short (156k vs 175k) but AHE rose 2.9% vs 2.8% exp. while Nov payrolls where revised sharply higher to 204k from 178k. Yields 2-4 bps higher led by the 5Y, with the 10Y 2.386% from 2.33% low pre eco data. Cdn data also very strong: employment rose 53.7k last month vs -2.5k exp – even accounting for monthly vol this is a strong beat!, full time rising 81.3k vs -8.7k . Can/US ~5-7bps wider even in the downtrade. Considering how much the mkt has rallied just since mid Dec ~20bps in US 10s , the mkt is ripe for a correction even thou specs (CFTC 10Y specs) are the are record short 341k contracts. Keep in mind there is $56bln in Tsy supply next week while US IG supply which came in above $20bln thi week is likely to be heavy next week as well with associated rate locks limiting any potential rebound.
News headlines
Second Wind for Dollar Before Jobs Undercuts Bonds: Markets Wrap (Bloomberg) The dollar rebounded as Treasuries fell before U.S. data expected to show sustained growth in hiring. Global stocks headed for the best start to the year since 2013. As the greenback stabilized Friday after a two-day tumble, the yen, euro and British pound all weakened and the Turkish lira extended losses. China’s offshore yuan pared a record weekly rally triggered by government curbs while a second intervention by Mexico’s central bank sent the peso to the top of the stack among major currencies. Oil declined and Treasuries snapped their biggest post-Brexit rally.
Oil prices post gains on OPEC hopes, but doubts linger (Reuters) Oil prices edged higher on Friday as output cuts by OPEC members met with lingering concern that other producers could try to shirk their share of planned decreases aimed at curbing global oversupply.
Yuan Pares Record Rally as Goldman Says Now’s the Time to Sell (Bloomberg) The offshore yuan pared its record weekly rally as China’s central bank raised its fixing less than projected and some analysts reiterated their bearish views on the currency. The exchange rate fell as much as 1.1 percent to 6.8623 a dollar in Hong Kong, the most since this day last year, after a 2.5 percent surge over the past two sessions. Goldman Sachs Group Inc. advised clients that the best times to bet against the yuan have tended to be after interventions that flushed out bearish positions, or when China concerns were off traders’ radar screens.
Euro-Area Economic Confidence Jumps to Highest Since 2011 (Bloomberg) Euro-area economic confidence jumped to the highest since 2011 at the end of last year after the European Central Bank extended its stimulus and the recovery in the 19-nation region showed further signs of strengthening. An index of executive and consumer sentiment increased to 107.8 in December from a revised 106.6 in November, the European Commission in Brussels said on Friday. That’s the strongest reading since March 2011 and compares with a forecast of 106.8 in a Bloomberg survey.
China central bank urges rational investment in bitcoin (Reuters) China’s institutional and individual investors should take a rational approach to investing in virtual currencies such as bitcoin, the central bank said on Friday. Bitcoin prices had showed abnormal fluctuations, the Shanghai head office of the People’s Bank of China (PBOC) said in a notice.
Canadian pensions see boost from rising bond yields after Trump victory (TheGlobeAndMail) Canadian pension plans ended 2016 with an average 95-per-cent solvency funding level, a dramatic improvement from the start of the year due to major gains from equity investments and climbing bond yields following Donald Trump’s election victory. An analysis by pension-consulting firm Aon Hewitt shows more than 35 per cent of the firm’s Canadian pension-plan clients were fully funded or had a surplus by the end of 2016, up from just 10.7 per cent at the start of the year, giving many more plans a cushion to weather future volatility.
Overnight markets
Overview: US 10yr note futures are down -0.2378% at 124-17, S&P 500 futures are up 0.06% at 2265.5, Crude oil futures are up 0.33% at $53.94, Gold futures are down -0.66% at $1173.5, DXY is up 0.5% at 102.03, CAD/USD is down -0.08% at 0.7568.
US Economic Data
| 8:30 AM | Trade Balance, Nov, -45.2b$, est. -45.4b$ (prior -42.6b$, -42.4b$) |
| Change in Nonfarm Payrolls, Dec, 156k, est. 175k (prior 178k, revised 204k) | |
| Change in Manufacturing Payrolls, Dec, 17k, est. 0k (prior -4k, revised -7k) | |
| Unemployment Rate, Dec, 4.7%, est. 4.7% (prior 4.6%) | |
| Average Hourly Earnings, m/m, Dec, 0.4%, est. 0.3% (prior -0.1%) | |
| Average Hourly Earnings, y/y, Dec, 2.9%, est. 2.8% (prior 2.5%) | |
| 10:00 AM | Factory Orders, Nov, est. -2.3%(prior 2.7%) |
| Durable Goods Orders, Nov F, est. -4.6% (prior -4.6%) | |
| Durables Ex Transportation, Nov F, est. 0.2% (prior 0.5%) |
Canadian Economic Data
| 8:30 AM | Int’l Merchandise Trade, Nov, 0.53b, est. -1.60b (prior -1.13b, revised -1.02b) |
| Unemployment Rate, Dec, 6.9%, est. 6.9% (prior 6.8%) | |
| Net Change in Employment, Dec, 53.7k, est. -2.5k (prior 10.7k) | |
| Participation Rate, Dec, 65.8, est. 65.6 (prior 65.6) | |
| 10:00 AM | Ivey Purchasing Managers, Dec, (prior 56.8) |
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