Market Update
US tsys yields ~1bp higher across the curve, except the long end which is unch, the US 10Y 1.55% (+1bp). Tsys rebounding after earlier losses in Europe as stock futures decline. European stocks holding on to ~1.0% gains, core Euro bonds lower – the Eurozone PMI rose to pre Brexit levels in August suggested continued growth in the area. Barclays month end extension for the Tsy index is a fairly large 0.13yrs which could add to flattening pressure going into month end. The US auctions $26bln in 2Y notes this afternoon with the 2Y @0.75% close to the top of its two-month range. The auction could require more of a concession given its proximity to Fed Yellen’s speech on Friday and recent hawkish Fedspeak from Fischer, Williams and Dudley. The mkt is still only ascribing 50% odds of a rate hike before year end. In Canada, GOCs are slightly higher in line with tsys , adding to yesterday’s bull flattening rally – the 10Y closing in once again on 1.0% resistance. Provi spds unch to start -Ont 26 86/85.5, Ont 48 98.5/97.5 – QC & NF rumoured supply candidates today. RioCan reit in the market with a 4Y deal @ 162 (+/- 2bps).
News headlines
- US tsys yields ~1bp higher across the curve, except the long end which is unch, the US 10Y 1.55% (+1bp). Tsys rebounding after earlier losses in Europe as stock futures decline. European stocks holding on to ~1.0% gains, core Euro bonds lower – the Eurozone PMI rose to pre Brexit levels in August suggested continued growth in the area. Barclays month end extension for the Tsy index is a fairly large 0.13yrs which could add to flattening pressure going into month end. The US auctions $26bln in 2Y notes this afternoon with the 2Y @0.75% close to the top of its two-month range. The auction could require more of a concession given its proximity to Fed Yellen’s speech on Friday and recent hawkish Fedspeak from Fischer, Williams and Dudley. The mkt is still only ascribing 50% odds of a rate hike before year end. In Canada, GOCs are slightly higher in line with tsys , adding to yesterday’s bull flattening rally – the 10Y closing in once again on 1.0% resistance. Provi spds unch to start -Ont 26 86/85.5, Ont 48 98.5/97.5 – QC & NF rumoured supply candidates today. RioCan reit in the market with a 4Y deal @ 162 (+/- 2bps).
News headlines
- Dollar Drops on Rate Outlook as European Stocks Rise, Oil Falls (Bloomberg) The dollar halted a two-day advance while emerging markets rebounded as investors reassessed prospects for higher U.S. interest rates. European stocks rose with U.S. equity-index futures, while oil extended its retreat from a seven-week high.
- IFC signs finance deal with Eurobank, eyes more with Greek banks (Reuters) The International Finance Corporation (IFC), a unit of the World Bank, signed a 100 million euro ($113.3 million) trade finance deal with Greek lender Eurobank (EURBr.AT) on Tuesday in a bid to provide much needed credit. The IFC, founded in 1956, last year invested about 300 million euros in Greece’s four big banks including Eurobank, taking part in their recapitalization and becoming a shareholder in all four lenders.
- Bank of Japan’s rush into stocks raises fears of market distortions (Reuters) The Bank of Japan’s near doubling of its purchases of Tokyo shares is causing investors to worry the central bank will dominate financial markets, which could lead to price distortions as it continues to grease the economy. The BOJ’s buying spree will make it harder for investors to sift good companies from bad, and raises a host of other problems including misallocating capital, making equities trading more speculative and reducing incentives for companies to meet shareholder needs, analysts say.
- Merkel Says Brexit Is U.K.’s Loss While Pledging EU Results (Bloomberg) German Chancellor Angela Merkel said the European Union needs to show it can prosper without the U.K. as she and the leaders of France and Italy sought to chart a way forward for Europe. “We respect Britain’s decision but naturally also want to make it clear that the other 27 are working for a prosperous, safe Europe,” said Merkel, standing alongside President Francois Hollande and Prime Minister Matteo Renzi on an Italian aircraft carrier to show resolve in mastering the continent’s crises. “We need results,” she said.
- Turkey cuts rates for sixth straight month amid ratings worries (Reuters) Turkey’s central bank cut borrowing costs for the sixth straight month on Tuesday, lowering its overnight lending rate by 25 basis points despite high inflation and worries about possible credit rating downgrades. As expected, the bank cut the highest of the multiple interest rates it uses to set policy to 8.5 percent. It left its benchmark one-week repo rate unchanged at 7.5 percent. Fifteen of 17 economists in a Reuters survey forecast a 25 basis point cut in the overnight rate, while two expected a cut of 50 basis points.
- Best Buy reports surprise rise comparable-stores sales (Reuters) Best Buy Co Inc (BBY.N) reported a surprise rise in quarterly comparable stores sales, helped by strong demand for appliances and consumer electronics. The company’s shares jumped more than 15 percent to $37.88 in premarket trading on Tuesday. The largest U.S. consumer electronics retailer also forecast revenue of $8.8 billion-$8.9 billion and a profit of 43-47 cents per share for the third quarter.
- BMO beats expectations as profit climbs to $1.25 billion, but more money set aside for bad loans (Financial Post) The Bank of Montreal saw its third-quarter profit grow four per cent to $1.25 billion even as it set aside more money for bad loans. Last year, BMO reported net income of $1.19 billion during the third quarter. On a per share basis, the earnings amounted to $1.86, compared with $1.80 per share during the same period last year.
Overnight markets
- Overview: US 10yr note futures are down -0.0472% at 132-7, S&P 500 futures are up 0.26% at 2187.25, Crude oil futures are down -0.91% at $46.98, Gold futures are up 0.37% at $1348.4, DXY is down -0.19% at 94.337.
US Economic Data
- 9:45 AM : Markit US Manufacturing PMI, Aug P, est. 52.6 (prior 52.9)
- 10:00 AM: Richmond Manufacturing Index, Aug, est. 6 (prior 10)
- New Home Sales, July, est. 580k (prior 592k)
- New Home Sales, m/m, July, est. -2.0% (prior 3.5%)
Canadian Economic Data
- There is no major economic data release 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