Market update
Tsys slightly lower in another low volume o/n trade, US 10Y 1.72%. German 10Y bund yield fell to a record low 0.033% on flight to quality bid after mid-morning Bloomberg report of unsafe Chinese interception of US aircraft. Bunds succumbed to profit taking on surge in UK April Industrial Prod. Rising 2.0% vs 0.0% exp, while manuf output rose 2.3% vs -0.1% forecast. ECB corporate bond purchase prgm officialy started with buying of utilities & telecom. Tsys sideways in Asia despite better China exports, prices pressured in Europe on UK data as well as rise in crude above $51, better stocks. The US auctions $20bln in 10Y notes at 1:00PM – last month’s $23bln 10Y auction stopped 1bp thru and indirect bidder part rose to a record 73% while primary dealers were awarded a record low 14.7%. GOCs opening slightly higher led by the 8-10Y sector. Provis starting weaker, Onts trading down 0.5bps across the curve -65.5/92.5/103.5 -selling vs corp deals a factor last couples of days, yest $1.2bln NWRP 3 part long deal pushed 10s/30s ~2bps wider and weighed on Ont 46/26 roll. Ontario issuing 3Y global – $1bln US pricing this aft @ MS +31/33.
News headlines
- Bonds, Commodities, Emerging Markets All Buoyed by Central Banks (Bloomberg) Bonds rose with commodities and emerging markets on speculation that central banks will persist with policies that support financial markets. The European Central Bank began buying corporate bonds to expand its monetary stimulus, helping drive average yields on investment-grade corporate debt below 1 percent. Germany’s 10-year bund yields, already at a record-low, approached zero. Emerging markets equities and currencies rose for a fifth day, boosted by Chinese trade data, while commodities gained for a sixth day, the longest run in three months, as oil climbed to a 10-month high and metals advanced. European stocks declined after their biggest gain in two weeks.
- World Bank cuts global growth forecast on weak demand, commodity prices (Reuters) The World Bank slashed its 2016 global growth forecast on Wednesday to 2.4 percent from the 2.9 percent estimated in January due to stubbornly low commodity prices, sluggish demand in advanced economies, weak trade and diminishing capital flows. Commodity-exporting emerging market countries have struggled to adapt to lower prices for oil, metals, and other commodities, accounting for half of the downward revision, the multilateral lender said in its latest Global Economic Prospects report.
- Oil hits eight-month high on disruptions, Chinese demand (Reuters) Oil prices jumped to their highest level in eight months on Wednesday, rising for a third consecutive session on supply disruptions in Nigeria and strong Chinese demand data. There was also a larger-than-expected drop in U.S. crude inventories on Tuesday, indicating an easing of the global supply glut. A weak dollar, which hit a five-week trough against a basket of currencies on Wednesday, also boosted prices.
- Japan’s GDP Grows More Than Initial Reading in 1st Quarter (Bloomberg) Japan’s economy grew slightly more than the government initially reported for the first quarter, helped by a fractional revision in private consumption and business investment that dropped less than first thought. Gross domestic product expanded by an annualized 1.9 percent in the three months ended March 31, more than a preliminary reading of 1.7 percent, according to revised data from the Cabinet Office released on Wednesday. The median estimate of economists surveyed by Bloomberg was for a 1.9 percent increase.
- China Exports Stabilize as Imports Hint at Improving Demand (Bloomberg) China’s exports stabilized in May, with a weakening currency giving some support to growth in the world’s biggest trading nation, while imports signaled improvement in domestic demand. Overseas shipments fell 4.1 percent in dollar terms from a year earlier, the customs administration said Wednesday. Imports slipped 0.4 percent — the smallest drop since late 2014 — to leave a trade surplus of $50 billion. Reflecting a weaker yuan, both exports and imports fared better when measured in local currency terms. Stocks pared losses in Shanghai.
- IEA Cuts Gas Use Outlook Again as Glut Seen to End of Decade (Bloomberg) While oil markets will start re-balancing after a slump next year, an oversupply in natural gas won’t disappear until the end of the decade, the International Energy Agency said, slashing its gas demand outlook for a fourth straight year. Global consumption will expand by 1.5 percent annually from 2015 through 2021, down from last year’s forecast of 2 percent growth from 2014 through 2020 and a 2.5 gain over the prior six years, the Paris-based agency said Wednesday in its Medium-Term Gas Market Report. The slowdown will be driven by weaker use in the U.S. and Japan as the fuel struggles to compete against booming renewables and “very cheap” coal in power generation.
- Brexit Contagion Is Spreading Across the EU, Pew Study Finds (Bloomberg) Opposition to the European Union is growing across the bloc, suggesting that anti-EU sentiment extends much further than traditionally skeptical Britain. As the U.K. gears up for a referendum on whether to remain in the club of nations it joined in 1973, a survey of more than 10,000 people across Europe showed that voters from Italy and Poland to Greece and Sweden have lost faith in the EU. People in France — one of the six founding countries — now see the bloc less favorably even than those in the U.K., as the euro-area debt crisis and refugee influx take their toll.
Overnight markets
- Overview: US 10yr note futures are down -0.0477% at 130-29, S&P 500 futures are up 0.18% at 2114, Crude oil futures are up 1.51% at $51.12, Gold futures are up 0.85% at $1257.6, DXY is down -0.27% at 93.577.
US Economic Data
- 10:00 AM : JOLTS Job Openings, April, est. 5675 (prior 5757)
Canadian Economic Data
- 8:15 AM: Housing Starts, May, 188.6k, est. 189.0k (prior 191.5k, revised 191.4k)
- 8:30 AM: Building Permits, m/m, April, -0.3%, est. 1.5% (prior -7.0%, revised -6.3%)
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