cti2015header-morning comments web

Market update

US tsys sharply higher, 10Y below 2.0%(-8bps) for the first time since Oct 16th after Jan Empire Man fell to lowest since June 2009 (new orders -23.5 vs -6 in Dec). China & oil main themes o/n with brent below $30 o/n while the China CSI 300 fell 3.0%. Core Retail sales also weak (-0.1% vs 0.2% exp) while PPI came in as exp.  Fed Dudley to speak@ 9:00 on the economy and mon policy. Core Euro bonds higher, German 10Y bund lagging the rally in tsys – -4bps @ 0.53%, the DAX -2.4% close to Sep lows. GOCs are higher, lagging the move in tsys ~4bps thru the curve longs particularly heavy all week – 10/30 now 85 bps + 2bps , 8bps wider on the week with 2/10 unch!, so longs start to look interesting here.

News headlines

  • Charting the Markets: Global Stocks Suffer From China’s Bear Market (Bloomberg) Global stocks are heading for their third consecutive weekly decline. Some $5.6 trillion has been wiped off the value of equities around the world in 2016. The MSCI All Country World Index is hovering above its lowest close since September 2013 as concern persists about the health of China’s economy, while the price of crude oil languishes at 12-year lows. Asian stocks sank to a three-year low, and the Stoxx Europe 600 Index dropped to its lowest since January 2015.
  • China’s Banks Scaled Back Lending in December (Bloomberg) China’s new bank loans came in lower than expected in December, as lenders sharply scaled back activity at the end of the year amid slowing economic growth and rising bad debt. However a broader measurement of credit that also includes nonbank lending showed a surprise rise, offsetting some of the impact from the retreat of state lenders, which have long been a major lever for Beijing to help lift the world’s second-largest economy.
  • Oil slides below $30 on oversupply fears (FT) Oil resumed its seemingly inexorable slide on Friday with prices on both sides of the Atlantic slipping below $30 a barrel as investors braced for the full return of Iranian barrels to the market.
  • Oil Seen Heading to $20 by Morgan Stanley on Dollar Strength (Bloomberg) A rapid appreciation of the U.S. dollar may send Brent oil to as low as $20 a barrel, according to Morgan Stanley.Oil is particularly leveraged to the dollar and may fall between 10 to 25 percent if the currency gains 5 percent, Morgan Stanley analysts including Adam Longson said in a research note dated Jan. 11.
  • Canadian dollar dips below 69 cents US, pressured by oil prices (TheGlobeandMail) The Canadian dollar was trading below 69 cents US early Friday for the first time since 2003 as crude oil futures dropped below $30 US a barrel. The loonie traded as low as 68.74 cents US about five hours before the Toronto Stock Exchange opened. It was somewhat higher at 6:30 a.m. ET, trading at 68.98 cents US — about two-thirds of a U.S. cent below the Thursday closing price.
  • Big five US investment banks hurt by China and oil (FT) Wall Street banks are poised to unveil another batch of lacklustre profits after the run-up to the Federal Reserve’s historic interest rate rise failed to boost their crucial trading businesses.
  • US equity funds hit by outflows for second straight week (FT) Investors pulled billions of dollars from US equity funds for the second straight week as fears of a slowdown in China continued to reverberate through global financial markets.The pace of withdrawals accelerated to $12.4bn in the week to January 13, with stock funds suffering the largest two-week period of redemptions in 10 months, according to fund flows tracked by EP.
  • Goldman Sachs agrees to tentative $5.1B mortgage settlement (USAToday) Goldman Sachs Group (GS) has reached a nearly $5.1 billion tentative settlement of a federal and state investigation of the investment banking giant’s handling of mortgage-backed securities before the national financial crisis, the bank said Thursday. The New York City-based bank will pay a $2.4 billion civil monetary penalty, make $875 million in cash payments and provide $1.8 billion in consumer relief — including mortgage principal forgiveness for underwater homeowners and distressed borrowers, forecloseure prevention, support for debt restructuring and other programs.
  • BHP Billiton takes $7 billion hit from U.S. oil business (CNNMoney) BHP Billiton announced a “disappointing” $7.2 billion pre-tax writedown on its U.S. oil and gas assets, following a slump in prices. The Anglo-Australian mining company said it was reducing the number of rigs in its onshore U.S. business to five, from seven currently. Just a year ago it was operating 26 rigs in the U.S. The company also said it will review its investment and development plans for the rest of the 2016 financial year.
  • Citigroup Earnings Jump on Lower Legal Fees, Higher Revenue (WSJ) Citigroup Inc. said Friday that fourth-quarter profit jumped as legal costs fell and revenue rose at the third-largest U.S. bank by assets. The New York-based bank reported a profit of $3.34 billion, or $1.02 per share. That compares with the $344 million, or 6 cents per share, it reported in the same period of 2014. Revenue edged up 3%, to $18.46 billion from $17.9 billion a year ago. After stripping out accounting adjustments, earnings were $1.06 per share. That edged past the $1.05 expected by analysts polled by Thomson Reuters. Adjusted revenue was $18.64 billion, beating analysts’ expectations of $17.9 billion.
  • Wells Fargo Reports Stable Profit on Slight Rise in Revenue (WSJ) Wells Fargo & Co. said its fourth-quarter profit was flat compared with the year-ago period, as the nation’s fourth-largest bank by assets continued to wrestle with a slump in oil prices. The San Francisco-based bank reported a profit of $5.71 billion, or $1.03 a share. That compares with $5.71 billion, or $1.02 a share, in the same period of 2014. Analysts polled by Thomson Reuters had expected earnings of $1.02 a share. Revenue rose to $21.6 billion from $21.4 billion. Analysts had expected $21.8 billion.
  • Canadian Oil Sands claims victory, calls for Suncor to disclose details to public (TheGlobeandMail) Canadian Oil Sands Ltd. is calling on Suncor Energy Inc. to disclose details of how shareholders reacted to its $4.3-billion hostile takeover bid for COS before a Jan. 8 deadline was extended by nearly three weeks.

Overnight markets

Overview: US 10yr note futures are up +0.66% at 128-22, S&P 500 futures are down -2.45% at 1867.75, Crude oil futures are down -4.74% at 29.72$, Gold futures are up +1.86% at $1093.90, DXY is down -0.48% at 98.611.

US Economic Data

  • Retail sales dipped a seasonally adjusted 0.1% last month to $448.1 billion after having climbed a 0.4% in Nov.
  • Retail sales excluding automobiles, gasoline, building materials and food services fell 0.3% after a downwardly revised 0.5% rise the prior month.
  • Core retail sales previously were reported to have advanced 0.6%. Economists had forecast  0.3% increase last month.
  • Producer prices slipped 0.2% after increasing 0.3% in Nov. Economists had forecast PPI falling 0.2%,  1.0% y/y.
  • Empire Man fell sharply in Jan plummeting to -19.4 from -6.2 in Dec and -4 exp. This is the lowest reading since 2009 driven by a collapse in new orders to -23.5 from -6.2 while shipments also contracted a lot (-14.4 vs. 4.6 prior).
  • Industrial Production fell 0.4% in Dec. vs 0.2% est, while capacity utilization dropped to 76.8% from 77%.

Canadian Economic Data

  • Canadian Dec. Existing Home Sales Fell 0.6%, Realtor Group Says



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
Institutional Bond and Equity Desk
CTI Capital Valeurs Mobilières Inc.

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