Market update
US tsys opening higher again this morning on China turmoil (China comp -7.0%, decline in China currency) but have since given up most of the o/n gains, with the US 10Y @2.17% after falling to as low as 2.12 o/n. Tsys pressured in early NY trading on reversal in stocks and lower initial claims (-10K). Rich Fed Lacker (non-voting hawk) saying Fed can hike rates more quickly if needed. In Canada, GOCs slightly higher, not getting much reaction from Poloz speech as he stressed that BOC could implement unconventional tools if needed but currency is primary adjustment mechanism so GOC curve ~1bps flatter 2s/5s. Provis out ~1bp , Ont 25s 97.5/96.5 – more talk of Ont 26 @ 1-1.5 vs Ont 25s so ~14.5 total pick.
News headlines
- Chinese Stock Plunge Forces a Trading Halt, and Global Markets Shudder (NYTimes) The market turmoil in China spread around the world, as global investors grew more anxious about the country’s currency and the health of its economy. Chinese stocks plunged on Thursday, by more than 7 percent, forcing officials for the second time this week to halt trading for the day — in this case, after just 29 minutes.
- China lets yuan fall faster, share trading suspended as prices tumble (Reuters) China allowed the biggest fall in the yuan in five months on Thursday, pressuring regional currencies and sending global stock markets tumbling as investors feared the Asian giant could trigger competitive devaluations from its peers.
- China Turmoil Has Traders Cutting Odds of Fed Rate Move by April (Bloomberg) The resurgence of Chinese stock-market turmoil in 2016 has investors increasingly betting that Federal Reserve officials will lose some of their resolve and delay future interest-rate boosts. Traders see a 43 percent chance that policy makers in Washington will lift the benchmark rate by their April meeting, down from 52 percent as recently as Tuesday. Investors back from holidays this week witnessed stock plunges in China that led authorities to close trading early twice. Turmoil caused by worries over the world’s second-largest economy last year helped convince the Fed to delay a rate increase from September to December.
- Oil slides below $33 to near 12-year low as China turmoil rattles investors (Reuters) Oil fell below $33 a barrel on Thursday for the first time since April 2004 as a fall in Chinese shares rattled investors already concerned by near-record production and massive stockpiles of unwanted crude and refined products. Oil prices have fallen by around 70 percent since mid-2014, hurting oil companies and governments that rely on crude revenue.
- World Bank Cuts Global Growth Forecasts (Bloomberg) The global economy will sputter along this year as China’s slowdown prolongs a commodity slump and contractions endure in Brazil and Russia, the World Bank said. The Washington-based development bank lowered its forecast for 2016 growth to 2.9 percent, from a 3.3 percent projection in June, according to its bi-annual Global Economic Prospects report released Wednesday. The world economy advanced 2.4 percent last year, less than a forecast of 2.8 percent in June and slower than the 2.6 percent expansion in 2014, the bank said.
- British Pound Falls Against Euro Despite Robust Service PMI Data (PSL) Pound sterling has slipped back against the euro in mid-week trade even as survey data from the UK economy confirms the labour market is tightening to levels the Bank of England can no longer ignore. Markit and the CIPS released their Service sector PMI data mid-week which came in below expectations but confirmed the labour market continues to tighten. With the services sector accounting for well over 70% of then UK economy this data provides an important pulse into the strength of the UK economy.
Overnight markets
- Overview: IG25 5Y 94.258/94.844 (+1.85), US 10yr note futures are up +0.10% at 126-31+, S&P 500 futures are down -1.96% at 1947, Crude oil futures are down -3.12% at 32.91$, Gold futures are up +0.90% at $1101.60, DXY is down -0.40% at 98.777.
US Economic Data
- United States Initial Jobless Claims came in at 277K, above forecasts (275K) in January 1
- The Bloomberg Consumer Confidence Index which measures views on the condition of the U.S. economy, personal finances and the buying climate will be released at 9h45am. (Prior: 43.6)
- Natural-gas inventories will be announced at 10h30am
Canadian Economic Data
- Canada’s Ivey purchasing managers index data for December, scheduled to be released at 10ham
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
Institutional Bond and Equity Desk
CTI Capital Valeurs Mobilières Inc.
Tel : (514)-861-0240
Fax: (514)-861-3230