cti2015header-morning comments web

Market Update

Tsys sharply lower, steeper, US 10Y 2.40% (+5.8bps) after ECB said it would buy E80bln/mth until March 17 but after reduce to E60bln until Dec 17. 10Y hit 2.416% at the lows but buyers have came in before ECB press conference. Core EGBs lower, yields 5-8bps higher, peripheral yields also higher –Italy 10Y +10bps at 1.977%. Euro 5Y5Y inflation forward swaps 1.68%, reached an 11 mth high on Tuesday 1.7%. Draghi saying ECB can increase purchases if necessary, bund curve sharply steeper as ECB lowers maturity bound to 1yr. European stocks regaining some of their initial declines after ECB, Stoxx up 1.0% led by 3.0% gain in financials, with US banks up ~1.0% premkt as US 2/10 curve 4bps steeper. GOCs lower in line with tsys, sharply lower after ECB but bouncing on Draghi press conference. Provis so far not reacting to higher GOC yields, were well offered yest as well, Ont 10Y 84.5/84 vs 82 low last Thurs. The BOC will auction $700mln in reopened Dec 47s at noon, which should be supported by a $790 RRB cpn payment. Breakevens have moved sharply higher ~20bps just since Nov 1st with the real yield curve flatter. The last auction in Sep was well received with a b/c of 2.19x yet was $400mln. With events in the US supporting a rise in inflation expectations and central banks in Cda and the US willing to let economies ‘overheat’ we are positive on BEs.

News headlines 

ECB Extends Bond-Buying at Reduced Pace Until End of Next Year (Bloomberg) The European Central Bank extended its quantitative-easing program until the end of 2017, while reducing the monthly pace of purchases to 60 billion euros ($65 billion) from 80 billion euros starting in April. The Governing Council also said it will step up purchases again or prolong them if needed.

Oil rallies over $50 despite OPEC output cut doubts (Reuters) Oil prices recovered above $50 a barrel on Thursday, bouncing back from the week’s lows as the dollar weakened against major currencies. The U.S. dollar index fell as Treasury bond yields eased and investors eyed next week’s Federal Reserve meeting. A weak dollar makes dollar-denominated oil less expensive for importing countries.

Japan’s economic growth much weaker than expected (Market Watch) Japan’s economy expanded at a much slower pace than initially estimated in the third quarter, as uncertainties overseas and slow wage growth at home continue to crimp growth. The nation’s gross domestic product, the broadest measure of economic activity in the country, grew at an annualized pace of 1.3% in the July-September quarter from the previous three months, compared with a preliminary figure of 2.2%, the Cabinet Office said Thursday.

Chinese trade data shows signs of industrial recovery (Reuters) China’s imports grew at the fastest pace in more than two years in November, fueled by its strong thirst for commodities from coal to iron ore, while exports also rose unexpectedly, reflecting a pick-up in both domestic and global demand. The upbeat data adds to signs of a modest industrial recovery in the world’s largest economies, even as China and other Asian exporters brace for a potential trade war once protectionist U.S. President-elect Donald Trump takes office.

Saudis Are Trying to Figure Out How the Post-Oil Era Works (Bloomberg) Ali Alireza’s family has been trading in Saudi Arabia before it even existed as the kingdom it is today. The 55-year-old managing director of Haji Husein Alireza & Co. Ltd., which sells vehicles from dump trucks to Aston Martin cars, has shared in a boom that turned the desert monarchy into one of the world’s richest countries. He’s been through three oil-price collapses, but the latest has brought the kind of trauma that neither he nor his forebears have ever experienced

Optimism blooms in the oil patch, but the recovery is likely to be slow — and jobless (Financial Post) Some optimism is returning in Canadian oil and gas, but the recovery is expected to be slow, and mostly jobless, as surviving companies remain cautious. Uncertainty remains over oil prices, carbon taxes are on the horizon and competition from better-positions rivals in the United States remains intense. But last week’s OPEC deal to end a two-year market share war, Ottawa’s approval of two oil sands pipelines, and a pickup in winter drilling have gone a long way to feed confidence that the worst of the downturn is over.

Overnight markets                                                                     

Overview: US 10yr note futures are down -0.3255% at 124-13, S&P 500 futures are up 0.11% at 2234, Crude oil futures are up 0.74% at $50.14, Gold futures are down -0.46% at $1172.1, DXY is up 0.64% at 100.87, CAD/USD is down -0.04% at 0.7559.

US Economic Data 

8:30 AM Building Permits, m/m, Oct, 8.7%, est. 1.5% (prior -7.0%, revised -4.6%)
Initial Jobless Claims, Dec 3rd, 258k, est. 255k (prior 268k)
Continuing Claims, Nov 26th, 2005k, est. 2048k (prior 2081k, revised 2084k)
9:45 AM Bloomberg Consumer Comfort Index, Dec 4th, (prior 44.9)
12:00 PM Household Change in Net Worth, 3Q, (prior 1075b)

Canadian Economic Data 

8:15 AM Housing Starts, Nov, 184.0k, est. 191.0k (prior 192.9k, revised 192.3k)
8:30 AM Capacity Utilization Rate, 3Q, 81.9%, est. 81.5% (prior 80.0%, revised 79.7%)
New Housing Price Index, m/m, Oct, 0.4%, est. 0.2% (prior 0.2%)
New Housing Price Index, y/y, Oct, 3.0%, est. 2.8% (prior 2.8%)


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