cti2015header-morning comments web

Market update

Another risk off session overnite, US tsys sharply higher, curve 4bps flatter, US 10Y 1.33 (-4bps) with UK gilts outperforming amid lower European stocks and a collapse in the GBP below 1.30. UST 10& 30Y yields at new record lows with some profit taking in London when the 10Y fell below 1.345% (MNI). Only secondary data today in the US but mkts will focus on FOMC minutes from last month’s meeting. The details of the Fed’s discussion on employment in view of the more downbeat statement and lowering of ‘dot plots’ will be carefully analyzed. GOCs higher, spds 1bp narrower vs tsys, curve 2bps flatter led by 10s which are below 1.0% for the first time since Feb. 5Y auction later today -reopened 0.75% sep 21s for $3.8bln with the yield@0.57% which would mark a record low auction yield vs 0.75% at the May 5Y auction. The roll (vs Mar21s) 4.3/4.2 is flatter this week yet could easily narrow further given the 2s5s is 4bps as well.

News headlines

  • Record-Low Yields Abound as Brexit Stresses Grow; Yen, Gold Gain (Bloomberg) It’s safety first for investors around the world as they assess the significance of Britain’s vote to leave the European Union. Demand for haven assets sent bond yields to record lows after Federal Reserve Bank of New York President William Dudley said Brexit’s significance could escalate if it triggers turmoil in markets beyond the U.K. The yen climbed to its strongest level since June 24, when the results of the British referendum first roiled global markets, and gold jumped to a two-year high, boosting shares of companies that mine precious metals. That didn’t prevent a gauge of global stocks from losing ground for a second day. Sterling touched its lowest level in more than three decades.
  • Gold Climbs to Two-Year High as UBS Sees Start of New Bull Run (Bloomberg) Gold climbed to a two-year high as investors sought a haven from the tumult in financial markets, with UBS Group AG saying bullion is probably at the beginning of its next bull run. The metal rose for a sixth day in London, reaching $1,371.39 an ounce, as stocks and the pound slid in the wake of the U.K.’s vote last month to leave the European Union. Gold may climb to $1,400 in the short term, according to UBS, which sees prices averaging $1,340 in the second half of this year.
  • Oil edges lower as strong dollar, economic concerns weigh (Reuters) Oil prices edged lower on Wednesday, extending losses to a third straight session, as a stronger dollar weighed and economic concerns rose following Britain’s vote to leave the European Union. Investors also awaited data on U.S. crude inventories, delayed due to Monday’s Independence Day holiday. Global benchmark Brent futures were down 30 cents at $47.66 a barrel at 0852 GMT after a 4.1 percent drop on Tuesday. U.S. crude traded at $46.35 a barrel, down 25 cents. The contract fell 5 percent to end at $46.60 on Tuesday.
  • Germany doesn’t want post-Brexit ‘race to bottom’ on taxes: Schaeuble (Reuters) Germany does not want a « race to the bottom » on tax policy in Europe, Finance Minister Wolfgang Schaeuble said on Wednesday when asked about reports that British finance minister George Osborne plans to cut corporation tax.
  • Japan government spokesman: Can see risk-off selling in forex market (Reuters) A Japanese government spokesman said on Wednesday that risk-off selling can be seen in the foreign exchange market, as the dollar slid below 101 yen JPY=. Deputy Chief Cabinet Secretary Hiroshige Seko also told a news conference that the government would refrain from commenting specifically on forex and long-term interest rates. Recent yen surges spurred by Britain’s decision to leave the European Union add to headaches for Japanese policymakers, who are worried about the effect a strong yen could have on exports.
  • Britain must respect all EU rules to keep access to markets: ECB’s Villeroy (Reuters) Britain must respect all EU rules if London aims to keep access to the bloc’s financial markets after it leaves the European Union, ECB governing council member Francois Villeroy de Galhau said on Wednesday.
  • Loblaw sends strongly worded letter to major suppliers, asks group to lower costs (FinancialPost) Loblaw president Galen Weston, who observed in May that consumers were getting fed up with rising food prices, now wants his company’s largest suppliers to shoulder a bigger part of the inflationary burden. In a strongly worded letter to its large suppliers this week, Loblaw is asking the group to cut costs by 1.45 per cent for shipments received by the country’s largest grocery chain on or after Sept. 4.


Overnight markets                                                                                          

  • Overview: US 10yr note futures are up 0.0233% at 133-30, S&P 500 futures are down -0.48% at 2072.75, Crude oil futures are down -1.01% at $46.13, Gold futures are up 1.07% at $1373.2, DXY is down -0.01% at 96.161.

US Economic Data

  • 8:30 AM: Trade Balance, May, est. -40.0b (prior -37.4b)
  • 9:45 AM: Markit US Services PMI, June F, est. 51.3 (prior 51.3)
    •      Markit US Composite PMI, June F, (prior 51.2)
  • 10:00 AM:  ISM Non-Manf. Composite, June est. 53 (prior 52.9)
  • 14:00 AM:  U.S. Fed Realeases Minutes from June 14-15 FOMC Meeting

Canadian Economic Data

  • 8:30 AM:  Int’l Merchandise Trade, May, est. -2.70b (prior -2.94b)



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