Market update
US tsys trading slightly higher along with core EGBs after ECB surprised with QE extension along with 10bp cut to deposit facility. ECB will expand monthly asset purchased to E80bln. Euro slammed in the wake of decision, down 1.2% close to 1.08 support. Bunds rising back to pre ECB levels, peripheral curves sharply flatter on QE expansion – Spanish 10Y new low 1.39% down 16bps. European equities surging ~3.0% led by rally in bank shares. In Canada GOCs back to unch after brief pullback post ECB, 10s another ~2bps weaker on the curve on top of yesterday’s 5bp pounding on post BOC bear steepening. The 10Y roll took the brunt of the selling action yest flattening almost a full bp to trade under 9bps for the first time since July. Corporate issuers taking advantage of quiet conditions in provis (QC, Alberta blackout) – Royal came with $2.5bln in 5Y dep notes @134 which broke 2bps tighter. Merrill Lynch issued ~$901mln in 5Y NHA MBS @88.
News headlines
- ECB cuts rates, expands asset-buying program to boost economy (Reuters) The European Central Bank cut interest rates on Thursday to boost the euro zone economy, surprising financial markets by dropping its main refinancing rate to zero from 0.05 percent. It also expanded its quantitative easing asset-buying program to 80 billion euros a month from 60 billion euros and cut its deposit rate to -0.4 percent from -0.3 percent, charging banks more to keep their money with the ECB.
- Fed’s Next Rate Move Splits Economists Looking Past March FOMC (Bloomberg) The great American jobs machine keeps humming and inflation is finally stirring to life. Still, economists are split over how aggressively the Federal Reserve will signal its next interest-rate move when policy makers meet on March 15-16. Economists surveyed by Bloomberg see the central bank holding rates unchanged next week and 55 percent predict the Fed will also echo the language of its January statement that officials were “assessing” global economic and financial developments. That would be viewed as signaling less likelihood of a hike at their April meeting.
- It’s All About Food: The IMF’s Advice to Defeat India Inflation (Bloomberg) India’s biggest enemy in the war on inflation is food, according to the International Monetary Fund. Central bank Governor Raghuram Rajan will have little room to lower one of Asia’s highest interest rates unless Prime Minister Narendra Modi boosts food supply, according to a new book published by the IMF. Rising incomes, stagnant crop production growth and poor management of buffer stocks have spurred food inflation in the world’s second-most populous country, it said.
- China Inflation Fastest Since Mid-2014 as Food Prices Jump (Bloomberg) China’s consumer price rose the most since mid-2014 in February as food costs jumped amid the week-long Lunar New Year holidays, where millions binge on roast pork, duck, seafood and vegetables. The consumer-price index rose 2.3 percent in February from a year earlier, up from 1.8 percent in January, as food prices surged 7.3 percent. Raising question marks over the durability of that pickup, non-food prices moderated from a month earlier to a 1 percent increase and services inflation slowed.
- How Global Investors Turn Negative Japan Yields Into Big Returns (Bloomberg) Record-low negative yields are no deterrent to overseas demand for Japanese government bonds. In fact, they’re an incentive. The discount offered to dollar holders to borrow yen for five years in the swap market reached a record 102.5 basis points this week, as the Bank of Japan’s Jan. 29 decision to switch to interest rates below zero widened a divergence from U.S. monetary policy. Calculations on returns for investors using such funding show the fixed coupon equivalent for owning five-year JGBs was 2.3 percent on Thursday, despite a yield of minus 0.16 percent on the debt.
- Brazil Central Bank Says Must Monitor Economy Before Next Move (Bloomberg) Brazil’s central bank said domestic and global uncertainties require further monitoring but could improve conditions for the convergence of inflation toward the target in 2017. Policy makers, led by their President Alexandre Tombini, kept the key rate unchanged at 14.25 percent last week for the fifth straight meeting, matching the median forecast of analysts surveyed by Bloomberg. Two of the eight board members — Tony Volpon and Sidnei Correa Marques — voted for a half-point increase to 14.75 percent for the third consecutive meeting, as inflation remains in the double digits.
- Brazil’s Retail Sales Drop More Than Expected in January (Bloomberg) Brazil’s retail sales fell twice as much as forecast in January as double-digit inflation and rising joblessness take a toll on consumers’ purchasing power. Sales fell 1.5 percent after a 2.7 percent drop in December, the national statistics agency said Thursday. That was more than all but one prediction from 39 economists, whose median forecast was for a 0.7 percent decline. Sales fell 10.3 percent over the past 12 months.
- Canada’s high-grade corporate bonds emerge from volatility as a buy (GlobeAndMail) Canada’s investment-grade corporate debt has taken a beating this year. Now, it’s starting to look like a buying opportunity. An index of high-grade corporate bonds issued in Canadian dollars has posted a negative return of 0.375 per cent since Dec. 31, on track for the worst first quarter since 2003, according to Merrill Lynch indexes. The extra yield that lenders are demanding over government bonds to hold the debt touched the highest level since the financial crisis last week.
Overnight markets
- Overview: US 10yr note futures are down -0.0726% at 128-31, S&P 500 futures are up 0.62% at 1992, Crude oil futures are down -0.13% at $38.24, Gold futures are down -0.39% at $1252.5, DXY is up 1.02% at 98.164.
US Economic Data
- Initial Jobless Claims number came in at a level of 259k, beating the estimate by 16k and down from prior week
- Continuing Claims number came in at a level of 2225k, beating the estimate by 25k and down 32k from prior week
Canadian Economic Data
- Capacity Utilization Rate was 81.1%, worse than expected by the analysts and down 0.5% from the previous period.
- New Housing Price Index MoM growth was 0.1%, missing the estimate by 0.1% and at the same level than prior month.
- New Housing Price Index YoY growth was 1.8%, top expectation and up 0.2% from prior year.
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