Market Update
US tsys lower in follow thru to yest FOMC led by the 5Y which is 6bps higher @ 2.10%, ~22bps in two days or the highest since Apr 2011. Small bounce after as expected CPI, thou both Phili Fed and Empire Man came in stronger. Foreign central bank selling across the US tsy curve in European, real money selling 30Y bonds according to MNI. The USD index surging higher another 1.3%, the euro below 1.04 the lowest since Jan 2003. European stocks higher led by financials, S&P futures slightly lower. Core Euro bonds in catchup mode, 10Y gilts 12 bps higher, bunds +7bps. German Manufacturing PMI came in above exp for Dec, 55.5 vs 54.5, while UK Retail Sales also rose more than exp in Nov. Foreign central bank selling across the US tsy curve in European hrs, real money selling 30Y bonds according to MNI. GOCs lower, lagging the move in tsys for a second day after yesterday’s massive outperformance. The 10Y reached 1.845% earlier, vs 1.70% pre FOMC. Provi spreads closed tighter yest for a thrid day, led by the front end. Provi FRNs have lagged the rally and continue to offer attractive pickup vs fixed ASW., ~6bps in 2019s.
News headlines
Dollar Climbs to Strongest Since 2003 on Fed Path; Bonds Drop (Bloomberg) The dollar climbed the highest level since 2003 against the euro as the prospect of a steeper path for U.S. interest rates next year filtered through markets. European bank stocks climbed while bonds and gold slumped. The greenback extended its advance against major and emerging-market peers after the Federal Reserve’s first and only interest-rate hike of 2016 was accompanied with a signal of three increases next year.
Bank of England Holds Rate and Says Inflation Rise May Slow in 2017 (Bloomberg) The Bank of England kept its key interest rate at a record low and noted that the pound’s recent appreciation may mean a slower pickup in inflation next year. In its last policy decision of 2016, the Monetary Policy Committee said sterling’s advance could mean “less of an overshoot” above its 2 percent goal than previously predicted. It still sees a pickup in price growth and repeated its line that it has limited tolerance for exceeding its target.
Euro zone businesses end year on a high note – PMI (Reuters) Businesses across the euro zone ended the year on an upbeat note as expected, according to a survey that showed they achieved solid growth and raised prices at the steepest rate since the middle of 2011. The positive survey will please policymakers at the European Central Bank, who in a surprise move last week trimmed their asset purchases but promised protracted stimulus to aid a still-fragile recovery and bolster weak inflation.
OPEC Threatened by Tiny Oklahoma Town With Soaring Supplies (Bloomberg) For OPEC, there are few enemies more fearsome than the tiny Oklahoma town of Cushing. With oil inventories at Cushing creeping near an all-time high, U.S. benchmark futures prices are struggling to advance despite the promised production cuts agreed to by OPEC, Russia and other producers. And the storage tanks are likely to stay full as refiners park crude in Oklahoma to lower their tax bills.
Carney Said to Meet at ECB as Central Banks Seek Brexit Help (Bloomberg) European monetary policy makers can ask for some of the best insight available into the economic implications of Brexit on Thursday, when Mark Carney visits Frankfurt. The Bank of England governor will attend a meeting of the General Council, the forum for the central banks of the 28-nation European Union, according to people familiar with the matter. Hosted by the European Central Bank, the event is highly likely to see him questioned about the British decision to leave the EU, the people said, asking not to be named because the session is private.
Bombardier sees improved profit next year as cost-cutting takes hold (GlobeAndMail) Bombardier Inc. says it expects to improve profit and grow revenue next year as it cranks up sales of rail equipment and C Series planes while the benefits of a deep cost-cutting effort take hold. The Montreal plane and train maker released financial guidance for fiscal 2017 after the close of markets Wednesday. It expects to tally earnings before interest and taxes in the range of $530-million (U.S.) and $630-million next year before special items, a roughly 50 per cent improvement over 2016. The profit target will be driven mostly by restructuring initiatives launched by chief executive officer Alain Bellemare, who replaced Pierre Beaudoin in the job in February of last year.
TD raises key mortgage rate for third time in a month (GlobeAndMail) Toronto-Dominion Bank has hiked its main mortgage rate for the third time in a month, reversing earlier plans to compete with its biggest rival on price. TD raised the rate on its five-year fixed mortgages to 2.94 per cent, a jump of 10 basis points, or 0.1 per cent. The change follows Royal Bank of Canada’s decision in mid-November to hike its equivalent rate by 30 basis points, to 2.94 per cent. Although RBC is TD’s largest competitor, TD decided not to follow suit at the time, and instead raised its own rate by 10 basis points, to 2.69 per cent.
Overnight markets
Overview: US 10yr note futures are down -0.4558% at 122-27, S&P 500 futures are up 0.04% at 2253, Crude oil futures are down -1.49% at $50.28, Gold futures are down -2.76% at $1131.6, DXY is up 1.17% at 102.95, CAD/USD is up 0.53% at 0.7488.
US Economic Data
| 8:30 AM | Current Account Balance, 3Q, -113.0b, est. -111.6b (prior -119.9b,revised -118.3b) |
| Empire Manufacturing, Dec, 9.0, est. 4.0 (prior 1.5) | |
| CPI, m/m, Nov, 0.2%, est. 0.2% (prior 0.4%) | |
| CPI Ex Food and Energy, m/m, Nov, 0.2%, est. 0.2% (prior 0.1%) | |
| CPI, y/y, Nov, 1.7%, est. 1.7% (prior 1.6%) | |
| CPI Ex Food and Energy, y/y, Nov, 2.1%, est. 2.2% (prior 2.1%) | |
| Real Avg Weekly Earning, Nov, 0.5%, est. 0.9% | |
| Initial Jobless Claims, Dec 10th, 254k, est. 255k (prior 258k) | |
| Continuing Claims, Dec 3rd, 2018k, est. 2003k (prior 2005k,revised 2007k) | |
| Philadelphia Fed Index, Dec, 21.5, est. 9.1 (prior 7.6) | |
| 9:45 AM | Markit US Manufacturing PMI, Dec P, est. 54.5 (prior 54.1) |
| 10:00 AM | NAHB Housing Market Index, Dec, est. 63 (prior 63) |
| 4:00 PM | Total Net TIC Flows, Oct, (prior -152.9b) |
| Net Long-term TIC Flows, Oct, (prior -26.2b) |
Canadian Economic Data
| 8:30 AM | Manufacturing Sales, m/m, Oct, -0.8%, est. 0.4% (prior 0.3%) |
| 9:00 AM | Existing Home Sales, m/m, Nov, (prior 2.4%) |
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