cti2015header-morning comments web

Market update

US tsys higher, curve flatter, on above avg volume in TY1 futures (306K), US 10Y below key resist 1.70%, now 1.676 (-3bps). Tsys rose in Asian session on Bank of Korea surprise 25bp rate cut, lower China CPI and strong 5Y JGB auction (bid/cover 4.66x – highest since 2014), USD higher while commodities are down , WTI down 0.80% below $51. Tsys continued to rise in Europe aided by big flattening move in German bunds as Euro stoxx are down 1.0%, German 10s/30s 3bps flatter – 12 bps over the past week. Concerns over bund scarcity as lower bund yields reduce the pool of eligible securities for ECB QE. UK 10Y gilt reached record low 1.22% as Brexit vote approaches – CITI saying yields could breach 1.0% in the event of Brexit on flight to quality, puts prob of yes vote 30-40%. GOCs higher led once again by 8-10Y sector with June 24/23 roll continues to compress and looks expensive (z-2.5) on 60 day basis. The long end lagging 10s30s 3bps steeper over the last week, the Can/US 10/30 box at 2 month highs. Toronto Hydro in the mkt with $200mln ~10Y (Aug 25 2026) at ~135 or 6bps over 10Y Hydro One (128?). Provis opening 1-2bps wider, PQ 26s 97.5/96.5 – issued yest @ 95.5. Ont 26 95/94 (93.5), Ont 46 106.5/106 (105). Rumours of long Toronto muni deal.

News headlines

  • Stocks, Commodities End Winning Streaks as Growth Optimism Ebbs (Bloomberg) Weeklong rallies for global stocks and commodities ended as the outlook for economic growth rekindled investor caution. The MSCI All-Country World Index fell for the first time in six days after reaching a six-month high, and futures on the S&P 500 indicated the gauge will slip after closing close to a record high. The Bloomberg Commodity Index was set to end the longest run of gains since March, as oil and most precious metals fell. Bonds rose, with U.K. gilt yields declining to a record low. Emerging markets declined.
  • BOK cuts rates to record low to offset weak exports, restructuring shipping (Reuters) South Korea’s central bank surprised markets by cutting interest rates to a record low 1.25 percent on Thursday, to cushion the economy against weak exports and the fallout from a massive restructuring of an ailing shipping industry. The 25 basis points reduction was the first cut since the Bank of Korea (BOK) last lowered rates in June 2015. Though low inflation is a source of concern, and a reason for lowering interest rates, some economists doubted whether the central bank could afford to cut again once an anticipated increase in U.S. interest rates finally takes place.
  • Faltering risk appetite hits global stocks, sends Bund yields to record lows (Reuters) Global stocks retreated on Thursday, dragged down by lower European and Japanese equity markets, as appetite for riskier assets faltered, underpinning demand for safe-haven German Bunds whose yields hit record lows. The dollar hit a five-week low against the yen, hurt by falling Treasury yields amid waning expectations that the Federal Reserve will lift interest rates anytime soon. Those expectations saw German 10-year Bund yields hit a low of 0.034 percent, not far from negative territory in which $10 trillions worth of bonds globally already trade at.
  • Oil prices soften on profit taking after hitting 2016 highs (Reuters) Oil prices edged lower on Thursday as traders took profits after three sessions of gains, though prices remained close to their highest this year thanks to a fall in U.S. crude inventories and supply disruptions. International Brent crude oil futures traded 13 cents a barrel lower at $52.38 a barrel at 0845 GMT, after setting a 2016 high of $52.86 a barrel earlier in the session. U.S. crude fell by 5 cents a barrel to $51.20 after also hitting a new 2016 high at $51.67.
  • Futures down as oil falls; jobless claims data awaited (Reuters) U.S. stock index futures were lower on Thursday as a rally in oil prices ended, and ahead of weekly jobless claims data, the first labor report since dismal May payrolls numbers jolted markets last Friday. Oil fell nearly 1 percent as traders took profits after prices rose for three days in a row following a weakening dollar. The dollar has fallen since the monthly jobs report reduced the chances of an interest rate hike in the near term.
  • China’s Factory-Gate Deflation Eases in Capacity-Cut Drive (Bloomberg) Deflationary pressures in China’s industries eased further in May, while consumer price gains continued to be subdued enough to offer the central bank scope for more easing if needed. Amid a drive by the Communist Party leadership to cut excess capacity, producer prices fell 2.8 percent, the least since late 2014 and less than the 3.2 percent decline economists had estimated in a Bloomberg survey. The consumer price index rose 2 percent from a year earlier, less than the median forecast of 2.2 percent.
  • Markets may be too complacent over Brexit risk, BlackRock says (Reuters)  Financial markets, particularly equities, may be under-pricing the risk of Britain leaving the European Union, the world’s largest asset manager said on Thursday, two weeks before Britons vote in a referendum on EU membership. Owen Murfin, co-lead manager for global bond strategies at Blackrock BLK.N., said that markets appear to be treating the possibility of Brexit as a local event rather than a globally systemic risk.

 Overnight markets 

  • Overview: US 10yr note futures are up 0.2148% at 131-6, S&P 500 futures are down -0.37% at 2101.25, Crude oil futures are down -1.15% at $50.64, Gold futures are down -0.11% at $1260.9, DXY is up 0.32% at 93.891.

 US Economic Data 

  • 8:30 AM: Initial Jobless Claims, June 4, 264k ,est. 270k (prior 267k, revised 268k)
    Continuing Claims, May 28, 2095k, est. 2171k (prior 2172k)
  • 9:45 AM: Bloomberg Consumer Comfort, June 5, (prior 43.2)
  • 10:00 AM: Wholesale Inventories, m/m, April , est. 0.1% (prior 0.1%)

Canadian Economic Data 

  • 8:30 AM: Capacity Utilization Rate, 1Q, 81.4%, est. 81.3% (prior 81.3%, revised 80.9%)
    New Housing Price Index, m/m, April, 0.3%, est. 0.2% (prior 0.2%)
    New Housing Price Index, y/y, April, 2.1%, est. 2.1% (prior 2.0%)

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