cti2015header-morning comments web

Market Update

US tsys reversing earlier gains after Q3 unit labor costs rose 0.7% vs 0.3% exp, yields ~1bp lower out to 7yrs, unch in longs, 10Y 2.39%. Narrow range in TY futures on below avg volume. Core euro bonds underperforming, 10Y bund yield 1.5bps higher @ 0.347%, German factory orders surged 4.9% in Oct vs 0.6% exp, the largest increase since July 2014. The long end supported by decline in crude and ECB meeting Thursday – consensus expects ECB to extend QE beyond March, six months at 80bln/mth. GOCs lower, spds ~1bp wider vs tsys after Oct trade deficit came in lower than exp ($1.13bln vs $1.7bln exp). Provis better offered , Ont 26s 84/83 from 83.5 yest close. Alta/Ont rolls continue to narrow, peripherals in general doing well. CMB 5Y deal next week  – looks cheap given latest underperformance vs provis, all in yield ~1.45% highest in a year, and steepening is 2s/5s since Nov provides better rolldown.

News headlines 

Futures flat as oil rally pauses (Reuters) U.S. stock index futures were little changed on Tuesday, a day after the Dow closed at a record high, as a rally in oil prices lost steam. Brent crude LCOc1 slipped 0.3 percent to $54.80, its first decline in five days as output rose in every major region despite plans by OPEC and Russia to cut production. The commodity has risen more than 18 percent since the output limit agreement was announced last week.

Oil dips as OPEC, Russian output rises ahead of production cut (Reuters) Global oil prices slipped on Tuesday as crude output rose in most major export regions despite plans by OPEC and Russia to cut production, triggering fears the fuel glut that has dogged markets for over two years might last well into 2017. International Brent crude oil futures LCOc1 were trading at $54.83 per barrel at 1127 GMT, down 11 cents from Monday’s close. U.S. West Texas Intermediate crude was at $51.50 a barrel, down 29 cents.

Canada’s Key Rate Set to Lag Fed’s for First Time Since 2007 (Bloomberg) Canada and the U.S., among the world’s biggest trade partners, are diverging when it comes to how their central banks view the recovery. That’s reflected in the odds investors are assigning to a rate increase this month at the Bank of Canada (zero) versus the Federal Reserve (100 percent). Governor Stephen Poloz makes his decision Wednesday at 10 a.m. from Ottawa. A rate increase from the Washington-based Fed on Dec. 14 would take the U.S. past Canada for the first time since 2007.

EU Brexit Negotiator: U.K. Has Less Than Two Years to Negotiate Brexit Deal (Bloomberg) The European Union signaled Prime Minister Theresa May must first strike a deal for the U.K.’s post-Brexit trade ties with the bloc or lose out on a transitional phase that banks and businesses want. As both sides prepare to face off in the new year, Michel Barnier, the EU’s chief negotiator, told reporters in Brussels on Tuesday that there might be “some point” to granting British industries a period to adjust to the new arrangements after Brexit, but that would depend on a permanent trade plan being agreed.

Softer rate outlook does not justify easier mortgage rules: Bank of England (Reuters) Reduced market expectations of a big rise in interest rates do not mean the Bank of England should loosen rules designed to stop mortgage borrowers getting into difficulty, central bank regulators have agreed. Volatility in bond yields – as seen after the election of Donald Trump as U.S. President – suggest the BoE should take a cautious approach, and also ensure borrowers can cope with other shocks such as a rise in unemployment, regulators said.

Bank of Montreal boosts dividend as $1.35 billion profit beats market expectations (Financial Post)  Bank of Montreal reported fourth-quarter earnings well ahead of market expectations as Canada’s fourth-biggest lender benefited from strong performance by its U.S. personal and commercial business. Net income for the fiscal fourth quarter ended Oct. 31 climbed to $1.35 billion or $2.02 a share, from $1.21 billion, or $1.83, a year earlier, the Toronto-based lender said Tuesday in a statement. Profit excluding some items was $2.10 a share, beating the $1.85 average estimate of 16 analysts surveyed by Bloomberg.

Overnight markets                                                                     

Overview: US 10yr note futures are up 0.0126% at 124-16, S&P 500 futures are up 0.12% at 2207, Crude oil futures are down -2.26% at $50.62, Gold futures are down -0.27% at $1173.3, DXY is up 0.2% at 100.29, CAD/USD is up 0.12% at 0.7525.

US Economic Data 

8:30 AM Trade Balance, Oct, est. -42.0b, -42.6b, (prior -36.4b, revised -36.2b)
  Nonfarm Productivity, 3Q F, 3.1%, est. 3.3% (prior 3.1%)
  Unit Labor Costs, 3Q F, 0.7%, est. 0.3% (prior 0.3%)
10:00 AM Factory Orders, Oct, est. 2.6% (prior 0.3%)
  Factory Orders Ex Trans, Oct,  (prior 0.6%)
  Durable Goods Orders, Oct F, est. 3.4% (prior 4.8%)
  Durables Ex Transportation, Oct F, est. 0.5% (prior 1.0%)
  Cap Goods Orders Nondefense Ex Air, Oct F, (prior 0.4%)
  Cap Goods Ship Nondefense Ex Air, Oct F, (prior 0.2%)
  IBD/TIPP Economic Optimism, Dec, est. 52.0 (prior 51.4)

Canadian Economic Data

8:30 AM Int’l Merchandise Trade, Oct, -1.13b, est. -1.70b (prior -4.08b, revised -4.38b)
10:00 AM Ivey Purchasing Managers Index, Nov, est. 60.0 (prior 59.7)



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