cti2015header-morning comments web

Market update

US tsys slightly higher, curve unch, US 10Y 1.964 (-1.2bps) vs 1.94 yest low. ECB left rates unch as exp. Draghi press conf likely to focus on the collapse in inflation expect – Eur 5Y5Y inf swaps back to Jan 15 low where QE was announced. Crude ~1.0% lower at 28.07, Asian stocks were lower led by Shanghai Comp -3.2% but Euro stocks are 1.0% higher. Dow futs -0.25%. The PBOC injected 400bln Yuan ($61bln) with reverse repos, the largest such operation since 2013. Core Euro bonds mixed, bunds higher, gilts lower blamed on switch trades out of gilts to bunds (MNI) after yest weak 5Y gilt auction. GOCs are lower,spds ~2bps wider vs tsys in the short end – curve flatter led by the belly. GOC curve saw large swings post BOC, ended up ~12bps flatter 2s/10s. Provis opening ~1bp weaker Ont 46 122/121. Focus on 10Y auction – $2.5bln reopening of June 26 with the roll 13.2/13.

News headlines

  • PBOC Injects Most Cash in Three Years in Open-Market Operations (Bloomberg) China’s central bank cranked up cash injections in its money-market operations for the third week in a row, heading off a squeeze as a seasonal jump in demand for funds coincides with surging capital outflows. The People’s Bank of China added 400 billion yuan ($61 billion) to the financial system using reverse-repurchase agreements, the most in three years, bringing net injections via its various lending tools for the month to more than 1 trillion yuan.
  • Even the ECB’s Cash Can’t Stop Investors Worrying About Portugal (Bloomberg) As bonds tumble across southern Europe, it’s beginning to look like the European Central Bank’s market stimulus never existed for Portugal. The country’s bonds have slid since an inconclusive election on Oct. 4 led to weeks of political wrangling and a minority Socialist government promising to ease austerity. Yields on benchmark 10-year securities have climbed almost 80 basis points since then to 3.09 percent. They’re higher than when ECB President Mario Draghi unveiled his bond-buying program, or quantitative easing, last January.
  • Treasury Volatility at 4-Month High Leaves Analysts Struggling (Bloomberg) Treasury volatility jumped to the highest in almost four months, challenging analysts trying to predict the path of the securities amid whipsawing global financial markets. Yields on U.S. 10-year securities approached the lowest since October, erasing an earlier advance, as futures contracts on the Standard & Poor’s 500 Index slid and the Stoxx Europe 600 Index struggled to shrug off its recent losses. With inflation expectations in the U.S. tumbling along with oil prices, the nation is scheduled to sell $15 billion of 10-year Treasury Inflation Protected Securities Thursday.
  • ECB holds steady, takes cautious stance as markets tumble (Globe and Mail) The European Central Bank held interest rates at record lows on Thursday, but the market crash, tumbling bank stocks and ebbing inflation may set the stage for action later in the year. In December, the Governing Council cut the deposit rate, increased the charge on banks for parking money at the ECB, and expanded its purchase program to buy chiefly government bonds.
  • Loonie falls to ‘least favourite currency’ of 2016 for Australian bank strategist (Globe and Mail) When currency strategist Ray Attrill arrived in Toronto last month, he was feeling quite positive about the Canadian dollar. After meetings with investors and economists, his view changed.
  • S. economy could start feeling tremors of global market instability (Globe and Mail) After another punishing day on global stock and commodity markets, there is growing anxiety in some quarters that the financial turmoil could undermine the broader U.S. economy. The United States has been an island of stability in a world of bad news, churning out jobs and registering steady if unspectacular growth. Now some economists and investors fear that a bout of extended instability in financial markets threatens to weaken the country’s economy.
  • Greek PM says accepts partners’ demand for IMF role in bailout (Reuters). Greek Prime Minister Alexis Tsipras said on Thursday that Athens accepts its European partners’ insistence that the International Monetary Fund should play a role in supervising the country’s international bailout. Addressing the World Economic Forum in Davos on a panel that included German Finance Minister Wolfgang Schaeuble, Tsipras said Greece believed the European Union could manage the program on its own but it accepted that other partners wanted the IMF involved.

Overnight markets

  • Overview: US 10yr note futures are up  +0.17% at 129-03, S&P 500 futures are up +0.35% at 1861.75, Crude oil futures are down  -0.21% at 28.28$, Gold futures are down -0.89% at $1096.30, DXY is up +0.64% at 99.704.

 US Economic Data 

  • The Philly Fed manufacturing index came in at -3.5, better than expected and up from last month’s -10.2 reading. Expectations were for the report to come in at -5.9.
  • Initial jobless claims increased by 10,000 to a seasonally adjusted 293K , est. 277k. That was the highest level since early July. The 4wk moving average of claims increased by 6,500 to 285,000. That was the highest reading since April 2015.
  • Continuing unemployment benefit claims–those drawn by workers for more than a week–decreased by 56K to 2,208K
  • Bloomberg Economic Expectations for January (prior 43.5) & Bloomberg Consumer Comfort for last week (prior 44.4) will be released at 9h45am

 Canadian Economic Data 

  • There is no major economic data today.


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