Market update
US tsys slightly higher despite higher Euro stocks & bond yields, US 10Y 1.685%. Risk of Brexit continues to slide, while better than expected German ZEW index weighed on bunds, part the long end with 2s30s ~3.5bps steeper and the 10Y bund 0.067% – a two week high. With the eco calendar bare, tsy prices will be dictated by Fed chair Yellen’s testimony at 10:00am in front of the Senate Banking Committee. The US will auction $34bln in 5Y notes at 1:00PM after a weak 2Y yesterday (0.2bps tail b/c 2.72x and lowest direct bidders since jan 15). Despite recent cheapening the 5Y at 1.17% is still 20bps below levels of the last auction on May 25th. GOCs opening lower, 5s30s curve 1.5bps steeper. Provis unch after closing 2bps better yest with Ont & Que possible today after Mani 10Y yest ($800mln with $500mln carve out 5Y 109.5), Ont 10/30 steeper as 10s led the rally 11.6/11.4.
News headlines
- Stocks Gain With Pound as Dollar Falls Before Yellen’s Testimony (Bloomberg) Investors took a positive cue from the latest polls on Britain’s referendum over European Union membership, with global stocks advancing and the pound extending the biggest rally since 2008. The dollar weakened before Federal Reserve Chair Janet Yellen speaks on monetary policy. Sterling strengthened for a third day even as separate opinion polls showed leads for both the “Remain” and “Leave” campaigns two days before the vote.
- Oil prices slip after rally as market turns cautious (Reuters) Oil prices fell on Tuesday after a strong two-day rally abated amid volatility fed in part by a vote later this week in Britain that will determine whether the country will leave the European Union. A one-month ceasefire between the government and Nigerian militants whose attacks have curtailed the country’s crude oil exports also added a bearish signal to a market that had firmed on the back of supply disruptions. Brent crude August futures LCOc1 were trading at $50.05 at 1100 GMT, down 60 cents a barrel. The contract has risen by more than 6 percent since Thursday’s settlement, after dropping 10 percent in six previous sessions.
- Yellen makes ‘uncertainty’ new mantra as market doubts Fed view (Reuters) The U.S. Federal Reserve’s dwindling confidence in its own outlook and resulting confusion among investors are creating a policy problem that may require chief Janet Yellen to lay out her own views more forcefully. The Fed chair’s next communications test comes on Tuesday and Wednesday during her semi-annual testimony to U.S. lawmakers, less than a week after the central bank kept interest rates unchanged near record lows and lowered its projections for hikes in 2017 and 2018.
- ECB Set to Test Attraction of Paying Banks to Take Its Money (Bloomberg) The European Central Bank is about to find out how attractive its offer to pay lenders to lend really is. Starting tomorrow, euro-area banks can bid for a four-year loan from the ECB at an interest rate that begins at zero and could ultimately be negative. The net take-up, after institutions repay their borrowings from an earlier and less-generous program, is likely to be 50 billion euros ($57 billion), according to a Bloomberg survey of economists. The result of the operation, the first of four, will be published on Friday.
- Brexit Vote in Balance in Polls as Soros Warns of Pound Plunge (Bloomberg) Britain’s referendum on European Union membership remained too close to call two days before the vote, with separate polls showing leads for both sides and billionaire investor George Soros warning of a slump in the pound should voters back a so-called Brexit. A YouGov poll of 1,652 voters for the Times newspaper published late Monday showed “Leave” at 44 percent and 42 percent for “Remain,” while a survey of 800 people by ORB for the Daily Telegraph had “Remain” at 53 percent and “Leave” at 46 percent once “don’t knows” were stripped out.
- Housing crash in Canada could cost mortgage lenders almost $12 billion, Moody’s warns (FinancialPost) There are “systemic vulnerabilities” in the Canadian mortgage market that would be exposed if the country were hit by a U.S.-style housing meltdown, according to a report from Moody’s Investors Service. A crisis on that scale could result in combined losses of more than $17 billion for the Canadian banks and mortgage insurers, with house prices falling by as much as 35 per cent, the ratings agency said in the report, published Monday.
- Russia doesn’t merit rating stabilization yet – Moody’s (Reuters) The steadying of Russia’s economy does not yet merit a stabilization of its sovereign rating outlook, credit rating agency Moody’s said on Tuesday. “We have a negative outlook which reflects Russia’s ongoing challenges, including – despite a recent recovery – an environment of subdued commodity prices relative to pre-crisis,” Moody’s top European sovereign analyst Dietmar Hornung told the Reuters Global Markets Forum.
Overnight markets
- Overview: US 10yr note futures are down 0% at 131-15, S&P 500 futures are up 0.22% at 2078.75, Crude oil futures are down -1.94% at $48.41, Gold futures are down -1.18% at $1276.9, DXY is up 0.09% at 93.694.
US Economic Data
- There is no major economic data for today
Canadian Economic Data
- There is no major economic data for 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