06/04/2016

cti2015header-morning comments web

US tsys lower, curve steeper, US 10Y 1.745 (+2.5bps), on very low volume in tsy futs (196k). USD higher, reversing yesterday’s decline, WTI up $1.00, Euro stocks higher and S&P futs up 0.20%. Tsys trading in a narrow range o/n pressured by stocks and oil, moving lower in Europe as long EGBs underperformed amid talk of large bund curve steepener (MNI) – bund curve ~4bps steeper. Light data calendar in the US with minutes of Mar 16 FOMC at 2:00 which may provide more clarity after Yellen’s dovish comments in NYC last week. GOCs opening lower in line with tsys, focus on 5Y auction at noon – new Sep 21 with the roll @10.3, which seems very cheap considering the Mar21-Jun 22 @18bps (straight line interp) this would value Sep 21s closer to 7.2 – so auction should go well even thou roll hasn’t traded much this week. Provis opening unch after 2.5bps widening yest – supply less of a possibility today with BOC. In corps Fortis BC issuing 10s & 30s @132.6/174 -both traded ~2bps tighter. Both tranches were rather skinny concession wise in our opin 2,3bps  or 40 over onts – yet fills we heard were 5%. On our side we continue to see interest in high beta BBB pipes, energy as well as NVCC.

News headlines

  • Asian Energy Stocks Rise With Crude Oil as Japanese Shares Slip (Reuters) Asian energy stocks advanced as crude oil futures rallied, while a stronger yen weighed on Japanese shares. The MSCI Asia Pacific Index was little changed at 124.44 as of 4:01 p.m. in Hong Kong, having swung between losses of 0.5 percent and gains of 0.3 percent. Japan’s Nikkei 225 Stock Average fell for a seventh day, its longest such streak since Prime Minister Shinzo Abe took power in 2012, after the yen surged to its highest level against the dollar in 1 1/2 years. After a rally in risk assets since mid-February, investors are turning cautious, with International Monetary Fund chief Christine Lagarde highlighting greater risks to global growth.
  • Oil futures rise on hopes for output freeze (Reuters) Crude oil futures rose on Wednesday as hopes for an agreement among exporters to freeze output underpinned the market, although persistent global oversupply and Iran’s plans to boost production put a cap on gains. Oil futures recovered from one-month lows to end the previous session up after Kuwait said there were “positive indications an agreement will be reached” on output during a producer meeting scheduled for April 17 in Qatar.
  • Yen holds strong after Japan PM’s currency comments (Reuters) The dollar hovered near a 17-month low against the yen on Wednesday after taking a fresh knock overnight on comments by Japan’s prime minister that suggested Tokyo was cautious about reining in the yen’s rise. Expectations that minutes of its last meeting will show some U.S. Federal Reserve officials more in favour of raising interest rates than chair Janet Yellen helped the dollar into positive territory against the euro.
  • China data to show exports, bank lending rising in March (Reuters) China’s exports likely returned to growth for the first time in nine months in March while the pace of bank lending may have picked up, adding to signs that the world’s second-largest economy may be stabilizing. Chinese leaders have pledged to make monetary policy more flexible this year even as it leans more on increased fiscal spending and tax cuts to support economic growth and cushion the pain from structural reforms.
  • German industry output raises growth hopes for first quarter (Reuters) German economic growth looked set to accelerate in the first quarter of 2016 after official figures released on Wednesday showed industrial output fell less than expected in February. Following the sector’s jump in January, the surprisingly small dip gave analysts some relief after data on Tuesday showed industrial orders unexpectedly dropped in February due to weaker foreign demand, particularly from euro zone countries.
  • Global Bond Yield Plunges to Record-Low 1.3% in Warning Sign (Bloomberg) Global bond yields fell to a record, a warning sign for the worldwide economy. The yield on the Bank of America Corp. Global Broad Market Index plunged to 1.3 percent, the lowest in almost 20 years of data. Bonds in the gauge have returned 3.6 percent in 2016, while the MSCI All Country World Index of shares has slumped 1.5 percent, including reinvested dividends. Treasuries declined, with 10-year yields climbing for the first time in three days, before minutes of the Federal Reserve’s March meeting are published.
  • Pfizer Confirms Termination of Proposed $160 Billion Allergan Merger (Bloomberg) Pfizer Inc. and Allergan Plc agreed to terminate their $160 billion merger, an abrupt end to the largest-ever health-care acquisition as officials in Washington crack down on corporate inversions. The U.S. Treasury Department’s proposed new rules to deter inversions drove the decision, the companies said Wednesday in a statement. New York-based Pfizer will pay Allergan $150 million in reimbursement for expenses associated with the transaction.
  • Sobeys’ price cuts on 8,500 items in Quebec could trigger grocery war with Loblaw, Metro (FinancialPost) Sobeys’ decision to slash prices on 8,500 grocery items this week in Quebec stands to trigger a price war with other grocery retailers. The retailer’s decision to drop prices by five per cent to seven per cent at its IGA stores in the province by Thursday “will require a response” from rivals Loblaw and Metro Inc., said analyst Keith Howlett at Desjardins Securities. “Both will have to decide whether or not to alter their weighting of everyday regular shelf prices versus promotional discounts” in the province.
  • Glencore sells agri unit stake for $2.5 billion to Canadian pension fund (Reuters) Commodity miner and trader Glencore (GLEN.L) has agreed to sell 40 percent of its agricultural unit to Canada’s state pension fund for $2.5 billion, the company’s latest step to cut debt and soothe investor concerns about the impact of weak commodity prices. The sale values the agricultural unit as a whole at close to the initially expected $10 billion, including $0.6 billion in debt and $2.5 billion in inventories, and comes after Glencore said last month it was stepping up its debt reduction plan by unloading more assets.
  • Ottawa looks to reach deal with provinces on infrastructure spending (GlobeAndMail) Ottawa is looking to hammer out infrastructure agreements with the provinces as soon as possible that will set the rules for how budget cash will flow to projects across the country. The negotiations are aimed at sorting out the power struggle between provinces and municipalities over how to spend the new federal windfall. Big-city mayors have made it clear they would like few strings attached and have urged Ottawa not to allow the provinces to delay construction with extra layers of approval. At the same time, cities are trying to secure money for their priority projects from provincial governments, which are constitutionally responsible for municipalities.

 

Overnight markets 

  • Overview: US 10yr note futures are down -0.0239% at 130-26, S&P 500 futures are up 0.05% at 2039.75, Crude oil futures are up 2.01% at $36.61, Gold futures are down -0.82% at $1219.5, DXY is up 0.34% at 94.953.

US Economic Data 

  • S. Fed Releases Minutes from March 15-16 FOMC Meeting at 2:00 PM 

Canadian Economic Data 

  • Ivey Purchasing Managers Index SA will be released at 10:00 AM

 

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