cti2015header-morning comments web

Market update

US tsys higher, curve steeper, US 10Y 1.92 (-1.5bps) on avg volume in TY futures. Big story overnite was huge miss in Aussie CPI with the headline down 0.2% vs 0.2% exp and the y/y rate falling to 1.3% from 1.7% yet most of the decline was attributed to the lower cost for tradable goods which is more a function of strength in the AUD, as non-tradable goods were steady at 0.4%. Core European bonds mixed, bund curve 2bps steeper longs underperforming, bunds supported by rally in Aussie bonds as well as strong German 30Y auction – bid/cover 1.6 vs 1.2 in March. FOMC decision at 2:00PM – should be a non-event yet the statement should reveal whether risks to growth have diminished since the March meeting. GOCs opening slightly higher, spds ~1-2bps wider vs tsys in 10s&longs. No data in Cda today so focus on Fed and issuance. Ontario still expected to issue, didn’t come yest and spreads rallied another 1.5bps in longs. Given the narrowing in the GOC 10Y roll and outperformance of Ont 26s it makes sense to us to take profit and switch into CMBs which have lagged the rally in provis a solid 10-15 bps just since March.

News headlines

  • Treasuries Rise, Dollar Drops Before Fed; Apple Weighs on Stocks (Bloomberg) Treasuries rose, sending 10-year yields lower for the first time in eight days, and the dollar weakened, as markets signaled caution before the Federal Reserve’s latest interest rate decision. Nasdaq 100 Index futures slumped as Apple Inc. tumbled after posting its first quarterly-revenue drop in more than a decade. Benchmark 10-year note yields retreated from the highest level in a month. Asian shares fell with U.S. equity index futures as Apple’s earnings added to the gloom around the current reporting season for technology companies.
  • Fed set to keep rates unchanged, may nod to ebbing risks (Reuters) The U.S. Federal Reserve is expected to keep interest rates unchanged on Wednesday as it continues to monitor the impact from weakening global growth but may seek to signal to markets it is determined to resume policy tightening this year. The Fed has held its overnight lending rate for banks at a target range of between 0.25 and 0.50 percent since it lifted the benchmark interest rate for the first time in a decade from near zero last December.
  • UK economy slows as global slowdown and Brexit uncertainty weighs (Reuters) Britain’s economy slowed at the start of this year, buffeted by a slowing global economy and uncertainty ahead of this year’s referendum on European membership, as it relied solely on the services sector to drive growth. First-quarter gross domestic product grew by 0.4 percent, down from 0.6 percent in the three months to December 2015 and in line with economists’ forecasts of a 0.4 percent expansion, the Office for National Statistics said on Wednesday.
  • Australia takes disinflationary turn, could force rate cut next week (Reuters) Australia is suddenly at risk of succumbing to the bane of global deflation that could unmoor future price expectations and force reluctant policy makers to cut interest rates deeper into record territory. The country’s benign inflation outlook was upended on Wednesday when data showed consumer prices surprisingly fell in the first quarter, pulled by the tumbling cost of oil. Key measures of underlying inflation also slowed to their lowest since the series began in 2002.
  • S. Oil Rises Above $45 a Barrel for First Time Since November (Bloomberg) Oil climbed above $45 a barrel in New York for the first time since November after U.S. industry data showed a decline in crude stockpiles. West Texas Intermediate futures climbed as much as 2.5 percent, extending a gain of 3.3 percent Tuesday. Inventories dropped by 1.07 million barrels last week, the industry-funded American Petroleum Institute was said to report. The World Bank boosted its forecast for oil prices this year, projecting that refinery demand will pick up and U.S. output cuts will steepen in the second half of 2016.
  • Deutsche Bank Struggles to Shake Winter Blues in Credit Markets (Bloomberg) For all of John Cryan’s efforts to reassure investors that Deutsche Bank AG is “rock solid,” credit markets are still signaling plenty of concern. The cost of insuring against losses on Deutsche Bank’s debt is 68 percent higher than the average for 12 of its biggest peers. While that’s less than it was in February, the gap shows investors are still singling out the bank after worries emerged earlier in the year that declining profitability will erode its ability to keep paying coupons on its riskiest bonds.
  • ‘Barrick is back,’ chairman declares, as restructuring moves pay off with strong results (Financial Post)  Tuesday’s annual meeting had to feel like a pleasant change of pace for Barrick Gold Corp.’s directors and senior management: For the first time in years, there was no crisis to avert. At last year’s meeting, shareholders were outraged over chairman John Thornton’s compensation. The year before that, there was frustration and confusion over the company’s failed attempt to merge with Newmont Mining Corp. And in 2013, there was yet another controversy over Thornton’s pay.


Overnight markets

  • Overview: US 10yr note futures are up 0.1814% at 129-13, S&P 500 futures are down -0.28% at 2082.75, Crude oil futures are up 2.09% at $44.96, Gold futures are up 0.66% at $1251.6, DXY is down -0.21% at 94.375.

US Economic Data

  •  10:00 AM:  Pending Home Sales, m/m, est. 0.5% (prior 3.5%)

                             Pending Home Sales NSA, y/y, est. 0.8% (prior 5.1%)

  •   2:00 PM:   FOMC Rate Decision, est. 0.25%-0.50% (prior 0.25%-0.50%)

Canadian Economic Data 

  • There 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