US tsys opening lower, 10Y 1.39 (+2bps), moving slightly lower after better than exp ADP employment (172K vs 160K). Core Euro bonds lower led by 30Y gilts, which at 1.60% are still ~60bps lower post Brexit – the 10Y gilt auction saw strong demand (b/c 2.33 vs 1.79 in May) which has the gilt curve 2bps steeper. Equities mixed o/n as the Nikkei fell while the FTSE & Euro Stoxx are both higher, S&P mini off 2.5pts. Crude higher for a second day close to $48 after API data showed inventories fell last week. GOCs opening weaker, thou longs are well bid for a second day 10/30 another 1.5bps flatter @56.4 – despite steeper curves in the US & core Europe. The flattening in global bond curves has been fairly relentless over the past two weeks, more talk of reach for yield in a negative yield environment as well as pension demand for duration. Provis opening unch after closing 1-1.5bps tighter yest on no supply.
- European Stocks Rise as Oil Advances Toward $48; Pound Rebounds (Bloomberg) Stocks rebounded from one-week lows in Europe and Asia as oil rose as industry data showed U.S. crude stockpiles fell. The pound advanced after setting fresh three-decade lows for two days. The Stoxx Europe 600 Index gained for the first time this week and emerging markets gained amid a subdued outlook for higher U.S. rates after Federal Reserve minutes showed officials were losing confidence in the economy’s ability to withstand a hike. U.S. equity index futures were little changed, while crude approached $48 a barrel. Sterling rallied after tumbling 2.7 percent against the dollar on Tuesday and Wednesday.
- Yuan Tumbling Again Leaves Investors Unperturbed in Win for PBOC (Bloomberg) The last time China’s currency was sinking this fast, investors around the world responded by fleeing riskier assets. Now, they’re taking the declines in stride. While the yuan has depreciated 1.5 percent over the past two weeks to the lowest level since November 2010, developing-nation and U.S. equities have held steady over the same period and the VIX volatility index has tumbled. Even the added headwind of Britain’s vote to leave the European Union has failed to derail markets that just six months ago convulsed with every move lower in the Chinese currency.
- China June forex reserves unexpectedly rise but outflow fears persist (Reuters) China reported a surprise increase in June foreign exchange reserves on Thursday, but analysts said they could fall again in coming months if the weakening yuan triggers more capital outflows. Even as the yuan slides to 5-1/2 year lows against the dollar and the economy struggles, official data suggest speculative capital flight is under control for now, thanks to the country’s capital controls.
- K. Industrial Output on Course for Positive Second Quarter (Bloomberg) U.K. industrial producers are on course to post their first positive quarter in almost a year after they cut output by less than economists forecast in May. Output at factories, utilities and mines fell 0.5 percent following an upwardly revised 2.1 percent surge in April, the Office for National Statistics said on Thursday. Economists in a Bloomberg survey had predicted a 1 percent drop. Manufacturing contracted by 0.5 percent, also less than expected.
- S&P warns of possible downgrade to Australia’s coveted rating, cuts outlook (Reuters) Standard & Poor’s on Thursday warned of a downgrade to Australia’s coveted triple-A credit rating within two years, saying the knife-edge July 2 election may have weakened the government’s ability to tackle its budget deficits. It cut its outlook on Australia to negative from stable and said there is a one-in-three chance of a ratings downgrade should the government fail to materially improve its balance sheet.
- S. Drops Libor Charges Against ICAP Trio After U.K. Acquittals (Bloomberg) U.S. prosecutors dropped a criminal complaint over Libor against three former ICAP Plc brokers after the men were acquitted by a U.K. court earlier this year. The case against Darrell Read, Colin Goodman and Danny Wilkinson was closed in a New York court on June 30, according to documents. The decision comes after the men were acquitted in January following a four-month trial with three other brokers from different institutions.
- PepsiCo Lifts Earnings Forecast as North American Sales Gain (Bloomberg) PepsiCo Inc. posted second-quarter profit that beat analysts’ estimates and raised its full-year forecast as sales of snacks and soft drinks in North America helped overcome weaker results abroad. Earnings rose to $1.35 a share, excluding some items, the Purchase, New York-based company said in a statement Thursday. Analysts estimated $1.29, on average. PepsiCo boosted its forecast for annual earnings growth to 9 percent from 8 percent.
- Overview: US 10yr note futures are down -0.152% at 133-15, S&P 500 futures are down -0.04% at 2093.25, Crude oil futures are up 1.16% at $47.98, Gold futures are down -0.22% at $1364.1, DXY is down -0.03% at 96.028.
US Economic Data
- 8:15 AM: ADP Employment Change, June, 172k, est. 160k (prior 173k, revised 168k)
- 8:30 AM: Initial Jobless Claims, July 2nd, 254k, est. 269k (prior 268k, revised 270k)
- Continuing Claims, June 25th, 2124k, est. 2120k (prior 2120k, revised 2168k)
- Building Permits, May, m/m, -1.9%, est. 1.5% (prior -0.3%, revised 0.1%)
- 9:45 AM: Bloomberg Consumer Comfort Index, July 3rd, (prior 43.9)
Canadian Economic Data
- 10:00 AM: Ivey Purchasing Manager Index, June, est. 51.2 (prior 49.4)
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