Market update
Tsys lower, yields 1bp higher across the cure, US 10Y 1.784%. Core European bonds underperforming led by UK gilts, with 10Y gilt ~3bps on better than expected employment growth, tsys pressured by weaker bunds, gilts in Europe. The tsy cpn curve narrowed yest to the flattest lvl since 2007 on hawkish Fedspeak and higher readings on CPI/PPI. The minutes from the April 27 FOMC meeting are scheduled for release at 2:00PM. Global stocks weaker, Euro stoxx down slightly, S&P futures moving lower after Target warned on Q2 earnings, the stock down ~9.0% pre mkt. In the US IG mkt $28bln in new issuance priced yest including $20bln 6 part Dell (Baa3/BBB-) deal which saw huge demand (~80bln order book). Spreads much tighter from IPT, and bonds still broke ~10-15 bps tighter – the 5Y 302/ priced at 312.5. In Canada, GOCs unch , provi spds unch , supply less likely with GOC 30Y auction & CMB 5Y FRN & 10Y fixed this morning. New CMB Sep 26 expected in the area of 60 bps over 10s, the WI trading tighter 59.5/58.5 this morning. Good demand seen for the issue (were sold out). In corps yest busy day with Cominar 7Y @ 325 looked 10-15bps cheap and broke 3 bps tighter. GOC 30Y auction at noon – 1.75bln in reopened Dec 48s with the roll 0.2bps tighter this morn 2.1/1.9 – weve seen some of the extension demand on our view the roll looked quite cheap (3 stds on 60-day basis).
News headlines
- Dollar Strengthens as Emerging Markets Slide on Fed; Gold Drops (Bloomberg) Financial markets are reawakening to the risk that the U.S. expedites interest-rate increases, and that’s buoying the dollar while denting emerging markets and commodities. The dollar climbed to a seven-week high and Treasuries fell, pushing two-year yields to highest since April, after Atlanta Federal Reserve President Dennis Lockhart and San Francisco’s John Williams said Tuesday two rate hikes may be warranted this year.
- K. Labor Market Cools as Growth Slows, Brexit Vote Looms (Bloomberg) The U.K. jobs market showed signs of cooling in the first quarter as Britain prepares for an increasingly bitter referendum on its European Union membership. The number of people in work rose by 44,000, less than a quarter of the gain seen at the end of 2015, the Office for National Statistics in London said on Wednesday. Unemployment fell 2,000, leaving the jobless rate at a decade-low 5.1 percent, as forecast by economists. The employment rate edged up to 74.2 percent.
- Japan Dodges Recession Thanks to Consumers, Public Spending (Bloomberg) Japan’s economy dodged a recession last quarter as gains in government and consumer spending compensated for a slide in business investment. Gross domestic product expanded by an annualized 1.7 percent in the three months ended March 31, exceeding all forecasts in a Bloomberg survey of economists, a Cabinet Office report showed on Wednesday. The October-to-December quarter was revised to a 1.7 percent contraction, worse than the previous estimate of a 1.1 percent drop.
- China April home prices accelerate, recovery spreads to smaller cities (Reuters) China’s home prices posted their fastest growth in two years in April, with gains in regional centers indicating a broader recovery in the country’s housing market beyond the major cities. However, while Shanghai and Shenzhen remained the country’s two hottest housing markets, there are signs recent tightening measures are beginning to temper demand in those cities.
- Oil Stocks ‘Outrun Fundamentals’ With 300% Gains in Three Months (Bloomberg) As oil flirts with $50 a barrel, investors are trading drilling stocks as if crude were selling for $80, and that’s the kind of optimism that leads to corrections. Legendary short-seller James Chanos said last week that he’s considering wagering against explorers because they’ve gotten ahead of themselves. In the last three months, Denbury Resources Inc., SM Energy Co. and California Resources Corp. have all quadrupled in value as the price of oil rose by just 52 percent.
- China will maintain tax rebate policy for steel exports (Reuters) China will maintain its tax rebate policy for steel exports as part of its efforts to help the sector tackle its longstanding overcapacity problems, the country’s finance ministry said on Wednesday. Chinese steelmakers have relied on the overseas market to soak up excess production in the sector, prompting growing anti-dumping complaints from foreign competitors. The Ministry of Finance said in an announcement on its website that it would also maintain a low rate of value-added tax on coal in order to support the sector’s restructuring efforts.
- Iran’s May oil exports set to surge nearly 60 percent from a year ago: source (Reuters) Iran’s oil exports are set to surge in May, climbing nearly 60 percent from a year ago, with European shipments recovering to about half of pre-sanction levels, according to a source with knowledge of the country’s crude lifting plans. This shows Tehran is regaining market share at a faster pace than analysts had projected as it battles with Saudi Arabia for customers by cutting its prices. April loadings at 2.3 million barrels per day (bpd) were around 15 percent higher than the International Energy Agency estimated earlier this month.
Overnight markets
- Overview: US 10yr note futures are down -0.1558% at 130-7, S&P 500 futures are down -0.29% at 2037.5, Crude oil futures are down -0.19% at $48.22, Gold futures are down -0.33% at $1272.7, DXY is up 0.26% at 94.795.
US Economic Data
- 7:00 AM: MBA Mortgage Applications, May 13, -1.6% (prior 0.4%)
- 2:00 PM: FOMC April Meeting Minutes will be released
- Factory Orders Revisions
Canadian Economic Data
- 8:30 AM: Int’l Securities Transactions, 17.17 B (prior $15.94 B)
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