07/04/2017

Market Update

Tsys moving lower after Mar Payroll downside surprise 98k vs exp 180k and AHE 2.7% y/y as exp and after a risk off session overnite in reaction to US Syria attack, US 10Y 2.303 vs 2.27% post payrolls. Core Euro bonds higher, bund & gilt yields 3-4bps lower., gilts getting an additional boost from much weaker than exp Feb Ind Prod (-0.7% vs 0.2%). GOCs lagging after employment rose 19.4k last month vs 5.7k exp led by 18.4k increase in full time. Provis unch , still fairly decent bid considering 10Y all in yields are lowest since Nov with rumours of Ont/QC deal in the works (long?). Quebec well bid, QC/Ont 48 0.8/0.6  vs 1.2bps last Fri – positive article in BB after budget supportive. Newfoundland budget very constructive for spreads –  deficit for FY 16/17 expected to be ~1.08bln vs 1.83bln proj last year or a $750mm reduction, while bond issuance will drop by 86%!  to $400mln from 2.9bln. The NF/Ont 48 roll 39/38 vs 48/46 last week – stil some decent relative value in NF credit despit ethe narrowing, spreads have barely retraced ~30% of their 2014 widening vs Ont.

News headlines 

Syria Strike Jolts Financial Assets; Ruble Drops: Markets Wrap (Bloomberg) The U.S. missile attack on Syria jolted financial markets, boosting haven assets and temporarily wresting investor focus from jobs data that may shed light on the strength of the world’s largest economy. Gold, oil and government bonds were among the biggest gainers following the first military strike undertaken by President Donald Trump’s administration, as some traders sought safety and others judged increasing tension in the Middle East would spur crude. Russia’s ruble dropped the most in almost a month and its bonds fell as optimism over a detente with the U.S. evaporated. The lira and stocks retreated in Turkey, which shares a border with Syria.

Oil hits one-month high after U.S. missile strike in Syria (Reuters) Oil prices hit a one-month high on Friday after the United States fired missiles at a Syrian government airbase, sending shockwaves through global markets and raising concerns that the conflict could spread in the oil-rich region. The toughest U.S. action yet in Syria’s six-year-old civil war has ramped up geopolitical uncertainty in the Middle East. Oil, gold, foreign exchange, German and U.S. 10-year bonds reacted strongly to the attack.

Payroll Gains Slow While U.S. Jobless Rate at Lowest Since 2007 (Bloomberg) U.S. payroll gains slowed in March while the jobless rate unexpectedly dropped to the lowest in almost a decade, suggesting the labor market is returning to a more sustainable pace of progress. The 98,000 increase followed a 219,000 rise in February that was less than previously estimated, a Labor Department report showed Friday in Washington. The median forecast in a Bloomberg survey of economists called for a 180,000 advance. The unemployment rate fell to 4.5 percent from 4.7 percent, and wage gains slowed to a 2.7 percent year-over-year pace.

Top Loonie Forecasters See Weakness Ahead on More Fed Rate Hikes (Bloomberg) The Canadian dollar will weaken in the coming months, as the Federal Reserve is expected to continue increasing rates while the Bank of Canada is bound to stay put, according to the currency’s highest-ranked forecasters. The loonie started strong in 2017, recovering from a 10-month low at the end of 2016 by taking advantage of January’s broad-based decline in the U.S. dollar. But it has faltered in recent weeks, reducing this year’s gain to 0.2 percent, making it the worst performer among Group of 10 currencies.

Bank of England’s Carney calls for UK-EU bank rules pact after Brexit (Reuters) Bank of England Governor Mark Carney called on Friday for Britain and the European Union to reach a sweeping deal to recognize each others’ bank rules after Brexit or risk a potentially damaging hit to financial services across Europe. Carney said in a speech at Thomson Reuters’ London office that banks had to be ready for a “hard” Brexit and he set a July 14 deadline for cross-border finance firms operating in Britain to tell the BoE how they would cope with an abrupt EU exit.

Greece Rescue Payout Moves Closer With Deal to Accelerate Talks (Bloomberg) Greece and its international creditors struck an agreement at a meeting of euro-area finance ministers in Malta on Friday, breaking the latest deadlock over the country’s rescue and paving the way for about 7 billion euros ($7.5 billion) in aid for Athens.

China’s Xi urges trade cooperation in first meeting with Trump (Reuters) Chinese President Xi Jinping urged cooperation with the United States on trade and investment on Thursday, inviting President Donald Trump to visit China in a cordial start to their first meeting likely to broach sensitive security and commercial issues.

Overnight markets 

Overview: US 10yr note futures are up 0.212% at 125-13, S&P 500 futures are down -0.16% at 2350, Crude oil futures are up 0.29% at $51.85, Gold futures are up 1.29% at $1269.5, DXY is up 0.13% at 100.8, CAD/USD is down -0.33% at 0.748.

US Economic Data

8:30 AM Change in Nonfarm Payrolls, Mar, 98k, est. 180k (prior 235k, revised 219k)
Unemployment Rate, Mar, 4.5%, est. 4.7% (prior 4.7%)
Average Hourly Earnings, m/m, Mar, 0.2%,  est. 0.2% prior 0.2%, revised 0.3%
Average Hourly Earnings, y/y, Mar, 2.7%, est. 2.7% (prior 2.8%)
10:00 AM Wholesale Inventories, m/m, Feb F, est. 0.4% (prior 0.4%)
3:00 PM Consumer Credit, Feb, est. $15.000B (prior $8.794b)

Canadian Economic Data

8:30 AM Net Change in Employment, Mar, 19.4k, est. 5.7k (prior 15.3k)
Unemployment Rate, Mar, 6.7%, est. 6.7% (prior 6.6%)
10:00 AM Ivey Purchasing Managers Index, Mar, est. 56.0 (prior 55.0)

 

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