Market update
US tsys opening higher, curve unch, 10Y 1.73 (-2bps), fairly confined trading range since European trading, main theme was selling in Asia despite a steep decline in the China comp on a hike in the reserve ratio for certain banks and an increase in the repo rate (2.10% vs 1.97 prev day avg). Yet European stocks higher, EGBs lower, crude back over $32. Fed Bullard said he doesn’t see recession risk, but Fed is not on pre-determined path to rate hikes. Core Euro bonds lower led by 10Y gilts – UK Q4 GDP was in line at 0.5%. In Canada, GOCs are opening small higher led by 10s, provis opening ~0.5bps tighter after wild ride yest saw spds recover to close 1bp wider. Ontario budget this aft.
News headlines
- Risk rally fades as stocks, oil slip back into the red (Reuters) The recent recovery in riskier assets fizzled out on Tuesday, with a fall in stocks, oil and the value of China’s yuan currency boosting investor demand for safer assets such as the Japanese yen, government bonds and gold. Oil fell more than 2 percent and the main European stock indices fell as much as 1 percent, giving back some of their recent gains: oil rose more than 5 percent on Monday and world stocks recorded their biggest rise last week since early October.
- Earliest Chinese Data Signal Slowdown Hasn’t Bottomed Out Yet (Bloomberg) The first indicators for China’s economy this month signal its slowdown hasn’t bottomed out yet, highlighting the case for continued stimulus as the nation prepares to host finance chiefs and central bankers from the Group of 20 later this week. Private gauges of manufacturing and services fell to new lows, a reading of business confidence slipped, and interest in small and medium sized businesses deteriorated, the readings show. If confirmed in official data for February that starts to roll out from March 1, such weakness would suggest a slowdown in the nation’s old growth drivers may be deepening.
- The Trickle of U.S. Oil Exports Is Already Shifting Global Power (Bloomberg) The sea stretched toward the horizon last New Year’s Eve as the Theo T, a red-and-white tug at her side, slipped quietly beneath the Corpus Christi Harbor Bridge in Texas. Few Americans knew she was sailing into history. Inside the Panamax oil tanker was a cargo that some on Capitol Hill had dubbed “Liquid American Freedom” — the first U.S. crude bound for overseas markets after Congress lifted the 40-year export ban.
- Canada’s banks could be forced to raise equity, cut dividends if oil prices keep sinking, Moody’s warns (Financial Post) Some Canadian banks could be forced to preserve capital by raising equity or even cutting dividends if oil prices continue to slump, Moody’s warns in a new report. In a “severe stress” scenario modelled by the ratings agency, and included in the report to be widely circulated Monday, losses in consumer lending portfolios would exceed historic peaks and capital markets activity at the country’s biggest banks would be significantly crimped.
- BMO Profit Increases 6.8% After Bank Buys GE Finance Unit (Bloomberg) Bank of Montreal posted fiscal first-quarter profit that beat analysts’ estimates as contributions from its purchase of General Electric Co.’s transportation-finance business added to U.S. earnings. Net income for the period ended Jan. 31 climbed 6.8 percent to C$1.07 billion ($778 million), or C$1.58 a share, from C$1 billion, or C$1.46, a year earlier, Canada’s fourth-largest lender by assets said Tuesday in a statement.
- BHP, Standard Chartered Drag Europe Stocks From Three-Week High (Bloomberg) A retreat in miners, led by BHP Billiton Ltd. after it cut its dividend, sent European stocks lower for the second time in three days. BHP lost 3.5 percent after also reporting a profit drop. That dragged down a gauge tracking commodity producers, after Monday’s surge to the highest level since Dec. 3. Standard Chartered Plc was another notable decliner, down 3.7 percent after posting a surprise annual loss.
- Carney Says BOE Has Room for Maneuver Should Economy Weaken (Bloomberg) Mark Carney said Bank of England officials have scope to loosen monetary policy if needed as concerns that Britain may leave the European Union put further pressure on the pound. “If we were in a position where the economy needed additional stimulus, we do have considerable room,” the central bank governor told lawmakers in London on Tuesday.
Overnight markets
- Overview: US 10yr note futures are up 0.0477% at 131-2, S&P 500 futures are up 0.18% at 1933.75, Crude oil futures are down -1.28% at $31.74, Gold futures are down -0.25% at $1236, DXY is up 0.08% at 97.536.
US Economic Data
- Initial Jobless Claims number came in at a level of 272k, worse than expected and up 10k from prior week
- Continuing Claims number was at a level of 2253k as expected by the analyst and down 20k from prior period
- Durable Goods Orders growth was 2.9% higher than expected by the analysts and up 9.9% from prior month
- Durables Ex Transportation growth was 1.8% better than expected and up 2.8% from the previous month
- FHFA House Price Index MoM growth will be released at 9:00 AM
- Kansas City Fed Manufacturing Activity will be released at 11:00 AM
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