Market update
US tsys lower, yields ~1bp higher, curve slightly steeper, little reaction to marginally lower Phili Fed, slight increase in claims. Tsy 5Y underperforming for a 2nd day in follow thru to yesterday’s post hawkish FOMC minutes reaction which saw the 5s widen 2.5bps on the curve – 5s are now at cheapest levels in three months, just prior to the March 14th FOMC meeting. US 10Y 1.873 vs 1.88% at close yest, volumes way above avg in TY1 futures (427k). Tsys pressured along with core Euro bonds on (i) Japan machine orders (5.5% vs -0.9% exp), (ii) 5/10/15Y supply from France and Spain, (iii) strong UK retail sales at 1.5% vs 0.6% exp. Fed Lacker sounding fairly hawkish saying mkts had overestimated length of Fed pause, Brexit wouldn’t cause US recession etc.. GOCs lower, reacting to hawkish Fedspeak, spds 1bp tighter vs tsys. Provi spds firmer on higher cda yields & lack of supply, Ont 46 104.5/103.5, supply probable. CMB 10Y 59/58.5 (priced yest 59.5).
News headlines
- Stocks Retreat to Six-Week Low as Fed Dents Bonds, Commodities (Bloomberg) Global stocks slid to a six-week low, commodities dropped and bonds slipped as markets around the world braced for the possibility that the Federal Reserve will raise interest rates as soon as next month. A gauge of the dollar’s strength held gains following its biggest jump in six months. The MSCI All Country World Index declined for a third day after the minutes of the last Fed meeting showed most of its rate-setting officials were in favor of a move in June should the U.S. economy continue to improve.
- Oil drops below $48 on Fed hike speculation, fading support from outages (Reuters) Oil fell below $48 a barrel on Thursday, pressured by a stronger dollar and as a surprise increase in U.S. crude inventories served as a reminder that supply remains ample despite output problems. Supply losses in Canada and Nigeria have lent support, but cooler weather was expected to help firefighters battling Canadian wildfires. Traders said Exxon Mobil is boosting output at Nigeria’s largest crude stream. Brent crude LCOc1 was down $1.29 at $47.64 at 0951 GMT. It reached a 2016 high of $49.85 on Wednesday, only to close lower. U.S. crude CLc1 was down $1.06 at $47.13.
- Bond Traders Caught Napping as Fed Talks Tough on June Meeting (Bloomberg) It took only a few days for interest-rate anxiety to flood back into the bond market. After dismissing the chance of a Federal Reserve rate increase in June, traders reversed course Wednesday when minutes from the most recent Federal Open Market Committee meeting sent yields soaring. Most officials said at the April gathering that a move in June would be warranted if economic data indicate stronger growth and inflation.
- Moody’s Cuts 2016 U.S. Growth Forecast, Cites Weak Global Demand (Bloomberg) Moody’s Investors Service lowered its growth forecast for the U.S. economy this year to 2 percent from 2.3 percent to account for a weak first quarter, while anticipating underlying resilience through 2017. Moody’s said it expects the Federal Reserve to raise its benchmark interest rate “at most” twice this year, according to a statement it e-mailed. The ratings company also sees the country’s gross domestic product rising 2.3 percent in 2017.
- Now or later? Euro zone, IMF at odds over when Greece should get debt relief (Reuters) The euro zone and International Monetary are struggling with Greece’s debt crisis – not with Athens this time, but with each other over when to give Greece a break on its future massive debt repayments. The euro zone has begun talks on debt relief for Greece but wants to postpone the final decision until 2018; the IMF insists Greek debt repayment is unsustainable and investors need clarity now.
- Quebec pension fund Caisse’s Montreal LRT plan derails Via’s pitch for dedicated passenger tracks (Financial Post) Via Rail was in talks with Quebec’s pension fund about building a dedicated set of passenger tracks between Quebec City and Toronto, but that fell apart after the Caisse de dépôt et placement du Québec proposed a $5.5-billion commuter line for Montreal instead. Via chief executive Yves Desjardins-Siciliano said the development is a mixed blessing, as it shows that there’s investor appetite for rail projects but appears to eliminate a major contender for his own plan.
- Violent Struggle Over Oil and Money Rattles Global Energy Market (Bloomberg) After years of relative peace, militants are again blowing up the pipelines that criss-cross the mangrove swamps of Nigeria’s Niger River delta, reducing oil output to the lowest in almost three decades and fueling a rally in global crude prices. The resurgent conflict in Africa’s largest economy has a long history, interweaving corruption and poverty with regional rivalries and presidential politics, but at its core is money.
Overnight markets
- Overview: US 10yr note futures are up 0.0725% at 129-15, S&P 500 futures are down -0.33% at 2034.75, Crude oil futures are down -1.97% at $47.24, Gold futures are down -2.17% at $1246.7, DXY is up 0.42% at 95.481.
US Economic Data
- 8:30 AM: Chicago Fed Nat Activity Index, April, 0.10, est. -0.20 (prior -0.44, revised -0.55)
- Initial Jobless Claims, May 14, 278k, est. 275k (prior 294k)
- Continuing Claims, May 7, 2152k, est. 2158k (prior 2161k, revised 2165k)
- Philadelphia Fed Business Outlook, May, -1.8, est. 3.0 (prior -1.6)
- 9:45 AM: Bloomberg Consumer Comfort Index, May 15, (prior 41.7)
- 10:00 AM: Leading Index, April, est. 0.4% (prior 0.2%)
Canadian Economic Data
- 8:30 AM: Wholesale Trade Sales, m/m, March, -1.0%, est. -0.5% (prior -2.2%, revised -2.3%)
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