US tsys trading sharply higher, flatter, US 10Y below 2.0% (1.97, -8.5bps) on ‘risk off’ with US stock futures lower, European equities -3.0%, crude down 3.0% below $28.00. IEA warned oil market could ‘drown in oversupply’ (see above). Tsys off the highs despite weaker 8:30 data including Dec Housing Starts -2.5%, CPI -0.1% vs 0.0% exp. Latest JPM Tsy Client Survey for Jan 19th revealed highest no. of shorts since Nov 23 of last year. In Canada, GOCs are higher, lagging the rally in tsys by ~1.5bps with the curve ~2bps flatter after stronger Nov Wholesale Sales/Man Sales &before BOC. Crude weakness may tip the Bank’s hand in cutting rates with odds ~60%. Provis 2 bps wider, Ont 46 120/119, Ont 25 109.5/108.5.
- Canadians’ household debt climbs to highest in G7 in world-beating borrowing spree (Financial Post) Canadian households are carrying the biggest debt to income loads in the Group of Seven, the federal budget watchdog says – and that burden is likely to get even heavier. Canadians have piled up the biggest increase in debt to income in the G7 since 2000, according to a new report by the Parliamentary Budget Officer, released Tuesday.
- Bank of Canada’s Policy Flexibility Makes Rate Decision a Coin Flip (Bloomberg) Multiple threats to financial stability have made crystal balls cloudier this year. Uncertainty reigns ahead of tomorrow’s Bank of Canada interest rate decision. The implied odds of a rate cut according to financial markets stand at just over 50 percent, and private-sector economists are almost evenly divided on whether the nation’s central bank will cut its policy rate to a financial crisis low of 0.25 percent. But one thing’s for sure, says Avery Shenfeld, chief economist at CIBC World Markets: what the Bank of Canada will project as the headline inflation rate by the end of 2017. Canada Banks Unlikely to Fully Match Bank of Canada Cut: CIBC.
- Poloz Arrives at Crossroads With Canada Recovery in Tatters (Bloomberg) Stephen Poloz is in a no-win situation.As the Bank of Canada governor prepares to release his interest rate decision, forecasters are about evenly split on whether he’ll cut the benchmark rate to 0.25 percent or leave it at 0.5 percent. A cut risks adding to an already epic currency slump and may do little for growth; standing pat gives the impression the central bank is cold to the widening damage from collapsing oil prices.
- Global Stocks Slide on Oil Rout (Wall Street Journal) Global stocks resumed the year’s steep selloff Wednesday as oil prices sank to a 12-year low and resurgent concerns about global growth snapped a brief bout of gains in financial markets. Futures pointed to a 1.8% opening loss for the S&P 500. Changes in futures don’t necessarily reflect market moves after the opening bell. As shares across Asia and Europe fell, investors turned to perceived havens such as the yen, gold and U.S. Treasurys.
- K. wage growth slowest since February even as unemployment falls again (Globe and Mail) Wage growth in Britain in the three months to November was its slowest since February, official data showed on Wednesday, the latest sign the Bank of England will take its time before raising interest rates.The slowing in wage growth came even as Britain’s unemployment rate unexpectedly fell to 5.1 per cent, its lowest since early 2006, from 5.2 per cent in the three months to October.
- IMF says refugee influx could provide EU economic boost (TheGuardian) The recent influx of refugees into Europe is likely to raise economic growth slightly in the short term – mainly in Austria, Germanyand Sweden – and could deliver a bigger long-term economic boost to the EU if refugees are well integrated into the job market, according to the International Monetary Fund.3
- Oil market could drown in oversupply in 2016, says IEA (TheGuardian) The world could find itself drowning in oil this year and prices could fall further as new Iranian output cancels out production cuts elsewhere, according to the International Energy An increase in supply and weakening demand growth will ensure there is an overabundance of oil until late 2016 at the earliest, the IEA said in its January report. It said the result would be the third successive year when supply exceeded demand by 1m barrels a day, and the system would struggle to cope.
- Global unemployment to rise by 3.4 million in two years, report says (TheGuardian) International Labour Organization predicts joblessness will surpass 200 million by end of 2017 for the first time on record. More than 3 million people will become unemployed worldwide in the next two years, making existing jobs vulnerable and fuelling potential social unrest as the global economy slows, a report warns.The International Labour Organization predicts unemployment will rise by about 2.3 million this year to 199.4 million, and that 1.1 million will be added to the global count in 2017, taking joblessness to more than 200 million for the first time on record.
- Overview: US 10yr note futures are up +0.24% at 128-22, S&P 500 futures are down -1.45% at 1846.00, Crude oil futures are down -1.97% at 27.90$, Gold futures are up +1.17% at $1101.80, DXY is up +0.01% at 99.002.
US Economic Data
- Mortgage applications grew 9% from one week earlier (previous +21.3% with purchase sub-index +17.8% and refi sub-index +23.8%),
- Housing starts dipped 2.5 percent last month to a seasonally adjusted annual rate of 1.15 million homes. This follows a sharp 10.1 percent gain in November.
- Building permits fell 2.9 percent in December to an annual rate of 1.23 million.
- Consumer Price Index slipped 0.1 percent after being unchanged in November. Despite the drop last month, the CPI increased 0.7 percent in the 12 months through December, the biggest increase in a year.
Canadian Economic Data
- Canada November wholesale trade sales +1.8% vs +0.5% expected. Prior was -1.1% (revised to -1.3%)
- Canada Manufacturing Shipments (MoM) above expectations (0.5%) in November: Actual (1%)
- The Bank of Canada will announce its decision on a key interest rate at 10am against a backdrop of low oil prices, a tumbling Canadian dollar and grim prospects for economic growth.
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.
Tel : (514)-861-0240