Market update
US tsys erasing earlier losses despite improving risk sentiment, US 10Y 1.926% (unch). Euro banks up 5%, crude higher on IEA report saying oil may have bottomed. German govt bonds higher led by longs with the bund curve another 2bps flatter as mkts react to stimulus measures from ECB. EU peripheral bonds in rally mode – Spanish 10Y set a new low yield 1.468% (-12bps), while iTraxx Europe is 11.7 bps lower @ 73bps. GOCs higher after weak Feb employment (-2.3k, unemp rate 7.3% vs 7.2%). Yest 10s30s flattened 2bps to 77 as 10s cheapened another 3 bps on the curve in a directional move. Best guess as to why longs are doing so well this week as opposed to last (10s30s widened to ~82bps in last week) – $800mln in long provi supply last week while this week corp/provi supply concentrated in 5s (RY/WFC) & 10s (Sask). TRP 10-20 bps wider on proposed acquisition of Columbia Pipeline (Baa2/BBB-) Provis 1bp tighter after 3bp rally yest , Ont 46 109/108, Ont 26 100.5/99.5.
News headlines
- Shares bounce, euro fades after savage ECB reaction (Reuters) The euro steadied and European shares and bonds rebounded on Friday after being savaged on Thursday when the European Central Bank signaled it was unlikely to cut its negative interest rates further in the wake of a huge new stimulus plan. Markets were starting to focus on what they saw as the positive features of the ECB policy package, with surges to 2016 highs for both U.S. oil prices and China’s yuan also boosting confidence.
- Treasuries Set for Third Weekly Decline on Fed Rate Outlook (Bloomberg) Treasury 10-year notes headed for a third weekly decline as speculation of higher interest rates this year from the Federal Reserve gathered momentum. With global stock markets and commodities showing signs of recovering from the slumps seen in the first two months of 2016, demand for the relative safety of U.S. sovereign debt has eased. Added to that, bets the Fed will stay on course for tighter policy are growing as the economy improves, further weighing on Treasuries and driving 10-year yields to their highest in more than a month. Treasuries have been the worst performers after Canadian bonds in the past month among global sovereign debt.
- IEA Says Oil Price May Have Bottomed as High-Cost Producers Cut (Bloomberg) Oil prices may have passed their lowest point as shrinking supplies outside OPEC and disruptions inside the group erode the global surplus, the International Energy Agency said. Production outside the Organization of Petroleum Exporting Countries will decline by 750,000 barrels a day this year, or 150,000 barrels a day more than estimated last month, the agency said. Markets are also being supported by output losses in Iraq and Nigeria, and as Iran restores production more slowly than planned following the end of international sanctions, it said.
- Calmer markets, positive data prime Fed to push ahead with rate rises (Reuters) Barely a month ago Federal Reserve Chair Janet Yellen cut an isolated figure in her semi-annual testimony to Congress, forced to defend the U.S. central bank’s data-dependent approach while around her stocks plunged and oil prices sagged. But a recent string of positive economic news has dragged markets back closer to the Fed’s overall outlook, allaying recession fears and suggesting the Fed will have more credibility at its meeting next week when it says further rate hikes this year remain firmly on the table.
- China’s February New Credit Plunged From Prior Month Record (Bloomberg) China’s broadest measure of new credit dropped sharply after a record surge a month earlier. Aggregate financing was at 780.2 billion yuan ($120 billion) in February, according to a report from the People’s Bank of China on Friday, compared with the median forecast of 1.84 trillion yuan in a Bloomberg survey. New yuan loans were 726.6 billion yuan, compared to the median estimate of 1.2 trillion yuan.
- Why Euro-Area Inflation Will Be Low for Years, According to Draghi (Bloomberg) The European Central Bank is coming to terms with the idea that its near-2 percent inflation goal won’t be materializing anytime soon. Bank staff downgraded their outlook to 0.1 percent headline inflation this year, forecasts released Thursday showed, with price pressures rising to 1.6 percent by 2018 — still short of policy makers’ goal. In their December projections, they expected to hit 1 percent this year and 1.6 percent in 2017.
- K.’s Trade Deficit With European Union Widens to a Record (Bloomberg) Britain’s goods-trade gap with the European Union widened to a record, with exports in the last three months falling the lowest in more than six years. Data from the Office of National Statistics showed a deficit of 8.1 billion pounds in January and 23 billion pounds over the past three months. Both figures are the highest since the data began in 1998. Exports to the 28-nation bloc in the quarter through January declined to 32.7 billion pounds, the least since 2009.
- Economists aren’t worried if household debts hit new high. (But are you?) (GlobeandMail) Statistics Canada is expected to report this morning that a key measure of household debt has hit yet another fresh high in Canada. But interest rates are at rock bottom, and are going to remain there, so economists aren’t overly concerned. Not only that, our net worth is on the rise as property values increase.
Overnight markets
- Overview: US 10yr note futures are down -0.0243% at 128-20, S&P 500 futures are up 0.85% at 1996.25, Crude oil futures are up 1.69% at $38.48, Gold futures are down -0.39% at $1267.8, DXY is up 0.45% at 96.5.
US Economic Data
- Import Price Index MoM growth was -0.3% weaker than expected by the analysts and up 0.7% from prior month
Canadian Economic Data
- Unemployment Rate number came in at a level of 7.3% weaker than expected, and up 0.1% from prior month
- Net Change in Employment number came in at a level of -2.3k, missing the estimate by 12.3k
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