cti2015header-morning comments web

Market update

US tsys lower, steeper on low volume, US 10Y 1.742 (+2bps). USD mixed – falling to new seventeen month low vs the Yen, US equity futures up slightly while European equities higher led by financials (~2.0%) on news of possible Italian bank rescue fund. Core Euro bonds lower led by 10Y gilts. German bunds lower, 3bps steeper on news of possible rescue fund being set up to help Italian banks. GOCs trading lower led by 2.5bps under perf by 10s on the curve, on top of the 5bp cheapening on Friday in post empl flattening. Provis unch , Quebec 10Y global in the works according to IFR.

News headlines

  • European Stocks Rise Led by Italian Banks; Emerging Markets Gain (Bloomberg) European equities rose as Italian banks climbed before a meeting to discuss cleaning up the financial system. Emerging markets advanced after signs of a pick-up in Chinese industrial demand, while the Swiss franc weakened with government bonds. The Stoxx Europe 600 Index extended Friday’s gains, putting it on course for the biggest back-to-back advance since March, and futures on U.S. stock indexes were also higher.
  • Oil price dips on prospects for producers’ meeting (Reuters) Oil prices slipped on Monday over worries that the result of next Sunday’s meeting of producers in Qatar aimed at freezing current output levels would fail to improve the current supply-demand balance. Brent crude futures, the global benchmark, were down 27 cents at $41.67 a barrel at 0810 GMT, retreating from a three-week high reached on Friday. Oil prices rallied more than 6 percent last week after data showed U.S. energy firms had cut oil rigs for a third straight week to the lowest since November 2009.
  • Negative Interest Rates Benefit the Global Economy, Says IMF Chief Christine Lagarde (WSJ) Subzero interest rates in Europe and Japan are “net positives” for the global economy, International Monetary Fund chief Christine Lagarde said Tuesday, though she warned that the side effects of unorthodox central-bank policies should be closely monitored. Speaking ahead of the IMF’s Spring meetings in Washington, D.C., next week, Ms. Lagarde praised recent policy moves by the European Central Bank and the U.S. Federal Reserve, and called on governments to play their part by introducing growth-friendly reforms.
  • Italy Production Declines, Adding To Doubts on Pace of Recovery (Bloomberg) Italian industrial production fell in February, reflecting concerns about the pace of recovery that prompted the government to cut this year’s growth outlook. Output declined 0.6 percent from January, which registered a 1.7 percent revised jump, national statistics bureau Istat said in a report issued Monday in Rome. The median of 15 estimates in a Bloomberg survey called for a 0.9 percent drop in the February. On an annual, work-day-adjusted basis, production increased 1.2 percent, Istat said.
  • Carney’s `Brexit’ Headache Worsens With Rate Outlook Schism (Bloomberg) Mark Carney could face a challenge in just over two months, regardless of whether Britons choose to stay in or quit the European Union. While the Bank of England governor has signaled a slow tightening path, and investors see no rate increase for years, a vote to stay in the EU on June 23 potentially creates a whole new backdrop. With ‘Brexit’ risk removed, markets could pull in bets for a hike, generating a new communication hurdle for the Monetary Policy Committee, which holds its monthly meeting this week.
  • Fed’s Inflation Push Finally Has Bond Traders Wanting to Believe (Bloomberg) When it comes to inflation, bond traders are finally starting to listen to the Federal Reserve. After trying, and failing, to convince investors the steep drop-off in inflation in the past year was just a short-term blip, the Fed is now winning them over. Since mid-February, the outlook for consumer-price gains has soared from post-crisis lows as oil rebounds and Chair Janet Yellen signals a willingness to let the U.S. economy run hot before raising interest rates again. By one measure, market expectations rose last month by the most since 2011.
  • Tokyo warns again on yen strength (Reuters) Some cautious gains for European stock markets hauled the yen down off a 17-month high against the dollar on Monday after Japanese officials warned again that they could intervene against the currency’s “one-sided” rally. Chief Cabinet Secretary Yoshihide Suga said the Group of 20’s agreement to avoid competitive devaluations did not mean Japan cannot intervene against currency moves, repeating language which has flagged intervention in the past.
  • S. shale oil firms feel credit squeeze as banks grow cautious (Reuters) Nearly two years into an epic oil rout, U.S. shale drillers that have upended global energy markets are finally feeling a credit squeeze as banks make their biggest cuts yet to their loans. Every six months, oil and gas producers and their banks negotiate how much credit they should be given based on the value of their reserves in the ground. In previous reviews, banks were willing to offer borrowers some leeway, encouraged by producers’ hedges against falling prices and their ability to keep cutting costs in step with crude’s slide that began in mid-2014.
  • Tsipras demonizes IMF to rally troops for bailout sacrifices (Reuters) In Athens, walls have ears. The leaking of a conference call of International Monetary Fund officials on Greece’s latest bailout review has further undermined mutual trust in fraught debt talks, embarrassed the European Commission and infuriated the IMF and Germany. At stake are the IMF’s reputation as a stern enforcer of financial rescue programs meant to make indebted states viable and the European Union’s determination to hold the euro zone together and avert another damaging Greek crisis.
  • Wells Fargo admits deception in $1.2 billion U.S. mortgage accord (Reuters) Wells Fargo & Co (WFC.N) admitted to deceiving the U.S. government into insuring thousands of risky mortgages, as it formally reached a record $1.2 billion settlement of a U.S. Department of Justice lawsuit. The settlement with Wells Fargo, the largest U.S. mortgage lender and third-largest U.S. bank by assets, was filed on Friday in Manhattan federal court. It also resolves claims against Kurt Lofrano, a former Wells Fargo vice president.
  • S. banks’ dismal first quarter may spell trouble for 2016 (Reuters) It is only April, but some on Wall Street are already predicting a rotten 2016 for U.S. banks. Analysts say it has been the worst start to the year since the financial crisis in 2007-2008 and expect poor first-quarter results when reporting begins this week. Concerns about economic growth in China, the impact of persistently low oil prices on the energy sector, and near-zero interest rates are weighing on capital markets activity as well as loan growth.
  • Bill Gross sees one or two Fed rate hikes in 2016: Barron’s (Reuters) Bond manager Bill Gross predicts that the U.S. Federal Reserve will raise interest rates once or twice in 2016, according to an interview in Barron’s. Gross, who is the manager of the Janus Global Unconstrained Bond Fund (JUCAX.O), told Barron’s that he does not expect U.S. Treasury yields, which are currently around 1.7 percent, to change dramatically this year.


Overnight markets 

  • Overview: US 10yr note futures are down -0.0954% at 130-29, S&P 500 futures are up 0.43% at 2049.5, Crude oil futures are up 0.81% at $40.04, Gold futures are up 0.85% at $1254.4, DXY is down -0.26% at 93.993.                     

US Economic Data 

  • There is no major economic data for today 

Canadian Economic Data 

  • There is no major economic data for today


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