Market update
US tsys slightly higher in range bound o/n session, US 10Y 1.83%, 2s10s ~1bp flatter. Core Euro govt bonds higher & flatter on month end duration buying (MNI). The ECB is scheduled to start its corporate bond purchase plan on June 6th – Euro denominated IG yields have fallen ~40% YTD, far outpacing the 15% drop in US IG yields. Crude off 1% @ $49.00, USD higher, S&P futures flat. Fed chair Yellen speaks at 1:15PM yet is not expected to address mon policy, the US has an early close for the memorial day holiday Monday. Volatility in tsys, as measured by the MOVE index @ 66 is close to recent lows, despite a record $192bln in US IG priced so far in May. Including tsy supply the issuance figure rises to $320bln. All three US tsy auctions this week (2/5/7Y) stopped thru with yesterday’s 7Y auction showing the highest end user demand since Aug 2015. GOCs slightly lower , 5s30s ~1.5bps flatter, longs well bid going into m/e extension/coupon pmt. Provi spds unch, QC 48 issue yest @105 105.5/105, while front end spds unch to 0.5bps tighter. TD in the mkt with 1Y FRN @3MO COR + 17bps.
News headlines
- Stocks Reach Three-Week High in Yellen Countdown as Oil Falls (Bloomberg) Global equities were headed for the highest close in three weeks and the dollar rose versus most peers as investors waited to see whether comments from Federal Reserve Chair Janet Yellen would disrupt the calm that’s settled over financial markets. Stocks were poised for the steepest weekly advance in more than a month as financial risks around the world eased. Oil slipped after touching $50 a barrel this week for the first time in at least six months and iron ore rebounded.
- World Leaders Tangle Over Growth Recipe Amid Rising Risk (Bloomberg) World leaders meeting in Japan tangled over how to push the global economy toward growth amid an array of risks including geopolitical tensions, a slowdown in China and Britain’s potential exit from the European Union. The Group of Seven industrial nations — the U.S., Japan, Germany, the U.K, France, Italy and Canada — sought a coordinated approach at a summit in central Japan amid discord over the best policy mix of fiscal spending, monetary stimulus or structural reforms.
- Dollar Faces Yellen Hurdle on Path to Biggest Gain in 16 Months (Bloomberg) The dollar’s best month in more than a year faces one last barrier: Janet Yellen speaks on Friday and any hint that interest-rate hikes will be delayed could spur a reversal for the greenback. A gauge of the currency against 10 major peers gained 3.1 percent this month after a string of the Federal Reserve Chair’s colleagues signaled their willingness to tighten policy as soon as next month.
- Japan consumer prices fall for second month, keep pressure on BOJ (Reuters) Japan’s core consumer prices fell for the second straight month in April as weak consumption discouraged firms from raising prices, stoking fears of deflation and keeping pressure on the central bank to do more to hit its ambitious inflation target. A separate index calculated by the Bank of Japan also showed consumer inflation slowing to a near one-year low, casting doubt on its argument that underlying price trend is improving steadily thanks to its massive stimulus program.
- Battle Inside OPEC Eases as Saudi Oil Strategy Finally Pays Off (Bloomberg) Saudi Arabia has been fighting with fellow OPEC members since the oil rout started two years ago. For the first time next week, it can argue convincingly that its strategy of squeezing rival producers is succeeding. By stifling high-cost suppliers, the Saudi approach has now almost eradicated the global oversupply, spurring a price rally of 80 percent to above $50 since January. All but one of 27 analysts surveyed by Bloomberg said the Organization of Petroleum Exporting Countries will stick with the strategy rather than set output limits when ministers gather in Vienna on June 2.
- Global funds raise cash, bond holdings on Brexit, Fed fears (Reuters) Global investors have raised their holdings of cash and bonds, citing fears about potential shock waves from a Brexit vote rippling beyond Britain and the increased likelihood of a rise in U.S. interest rates this summer. Fund managers polled by Reuters in the United States, Europe, Britain and Japan raised cash allocations to 6 percent in May, the highest level since January when global equity markets were in free-fall. They also increased their bond exposure to 37.8 percent from 37.6 percent in April.
- Valeant rejected joint takeover bid from Takeda, TPG in spring: source (Reuters) Valeant Pharmaceuticals International Inc (VRX.TO) received a joint takeover offer from Japan’s Takeda Pharmaceutical Co Ltd (4502.T) and TPG Capital Management LP [TPG.UL] this spring that the Canadian drugmaker rejected, according to a source familiar with the matter. The offer was made a few weeks before Joseph Papa took over as Valeant’s new chief executive in April last week, the source told Reuters.
Overnight markets
- Overview: US 10yr note futures are down -0.0361% at 129-27, S&P 500 futures are up 0.01% at 2090, Crude oil futures are down -1.39% at $48.79, Gold futures are down -0.25% at $1219.6, DXY is up 0.25% at 95.403.
US Economic Data
- 8:30 AM: GDP Annualized, q/q, 1 Q, 0.8%, est. 0.9% (prior 0.5%)
- Personal Consumption, 1 Q, 1.9%, est. 2.1% (prior 1.9%)
- GDP Price Index, 1 Q, 0.6%, est. 0.7% (prior 0.7%)
- Core PCE, q/q, 1 Q, 2.1%, est. 2.1% (prior 2.1%)
- 10:00 AM : University of Michigan Sentiment, est. 95.4 (prior 95.8)
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