cti2015header-morning comments web

Market update

US tsys higher, curve flatter for a second day, US 10Y touched a new low 1.65% (-3b.4bps) on avg volume in TY1 futures (290K). Tsys flat in Asia but rose in Europe on more warnings on Brexit vote, ex ECB president Trichet warning Brexit would be a ‘catastrophe’. The GBP is lower for a third day, implied vol on 1month GBP options spiking to 23%, European stocks down 2.3%, core European bonds higher led by longs with the German 10Y 0.027%. GOCs higher yet paring gains after much stronger than exp May employment : +13.8k vs 1.8k exp , unemployment rate at 6.9% vs 7.1% lowest since July 15. Provi spds reacting to ‘risk off’ & rally in govies, spds out another 1-1.5bps. Emera issued $500mln (upsized) in 7Y @ 202 along with their USD $3.25bln deal to finance Teco purchase. The CAD 7Y narrowed 7 bps on the break.

News headlines

  • Stocks Retreat With Oil as Record-Low Bond Yields Point to Angst (Bloomberg) Caution prevails as the week draws to a close, with global stocks headed for their biggest two-day decline in a month and bond yields at record lows as investors gird themselves for potentially seismic events this month. The MSCI All-Country World Index pared its fourth weekly advance. Bonds rose, sending yields from Japan to Germany to all-time lows, before next week’s Federal Reserve meeting and Britain’s referendum on European Union membership later in the month. Rates on investment-grade corporate debt in euros were also near lows following purchases by the European Central Bank. Oil led commodities lower.
  • Bund Brexit rally puts zero yield firmly in sight (Reuters) Europe’s benchmark government bond, the 10-year German Bund, had a zero yield firmly in its sights on Friday as worries about a potential British exit from the EU and weakened U.S. rate hike expectations extended the week’s global bond rally. Investors sought refuge in safe-haven assets amid festering concerns over the June 23 Brexit referendum, though the appeal of ultra-low borrowing costs and a ninth week of gains for oil in the last ten [O/R] kept world stocks positive for the week.
  • Oil prices ease from 2016 highs on stronger dollar (Reuters) Oil prices fell on Friday, as a stronger dollar pulled crude off 2016 highs hit this week, although strong refinery demand and global supply disruptions lent support. Brent oil futures were trading at $51.15 per barrel at 5.10 a.m. ET, down 80 cents while U.S. West Texas Intermediate (WTI) futures were down 85 cents at $49.71 a barrel. Analysts said that a rebound in the dollar had dented oil prices by making fuel imports for countries using other currencies more expensive.
  • Swiss franc hits eight-week high on safe-haven demand (Reuters) Worries that Britain could vote to leave the European Union in two weeks’ time spread across the currency market on Friday, with the safe-haven yen hitting an eight-week high as investors ditched riskier assets for safety. As a risk-off mood across markets drove down emerging-market currencies and sent yields on Japanese and German 10-year bonds to record lows, the safe-haven Swiss franc gained 0.3 percent to trade at 1.0878 francs per euro EURCHF=, its strongest since April 14.
  • ECB Doesn’t Need New Stimulus to Hit Goal, Policy Maker Says (Bloomberg) The European Central Bank has pledged enough stimulus to return euro-area inflation to its goal, policy maker Bostjan Jazbec said, in a sign that officials may sit tight over the summer months. “At the current juncture, I’d firmly confirm that the measures work and that we can only look forward to responding to everything that comes to our table,” Jazbec, the Slovenian central-bank governor, said in an interview in Ljubljana on Thursday. “Of course, if you ask is there anything more we can do, my answer would always be yes. But is it needed today? No.”
  • How Far Can Oil Rally? Options Investors Bet on Surge Above $100 (Bloomberg) Oil investors are buying contracts that will only pay out if crude rises well above $100 a barrel over the next four years — a clear sign some believe today’s bust is sowing the seeds of the next boom. The options deals, which brokers said bear the hallmarks of trades made by hedge funds, appear to be based on the belief that current low prices will generate a supply crunch as oil companies cut billions of dollars in spending on developing fields. The International Energy Agency forecasts that non-OPEC supply will suffer its biggest decline in more than two decades this year.
  • Oil CEOs meet to plot new strategy as fissures within industry grow (FinancialPost) At a private meeting at the Calgary Petroleum Club last Friday, 150 or so oil and gas CEOs and other business leaders met to discuss the future of Canadian energy. Most of the companies represented were small players. The Canadian Association of Petroleum Producers, the large industry association that is seen as being dominated by the largest companies, was not invited.

 Overnight markets 

  • Overview: US 10yr note futures are up 0.1907% at 131-11, S&P 500 futures are down -0.59% at 2092.75, Crude oil futures are down -1.42% at $49.84, Gold futures are down -0.16% at $1270.7, DXY is up 0.3% at 94.231.

 US Economic Data 

  • 10:00 AM: University of Michigan Sentiment, Jun P, est. 94.0 (prior 94.7)

Canadian Economic Data 

  • 8:30 AM: Net Change in Employment, May, 13.8k, est. 1.8k (prior -2.1k)
    Unemployment Rate, May, 6.9%, est. 7.2% (prior 7.1%)

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