Market update
US tsys rallying hard for a second day, yields down 5-10 bps across the curve as the British pound fell below Friday’s post Brexit vote low 1.3250. The FTSE is off 2.0% led by a 7.7% decline in financials. Core European bonds sharply higher, UK 10Y below 1.0% after hitting all time low 0.929%, mkts pricing in near certain odds of a 25 bp rate cut from the MPC at the Sep meeting. IG credit spreads pushing wider, the IG 26 +1.3bps to 87.95 a three month high and the HY cash index +10.5bps to 633. GOCs higher, curve 2bps flatter with the 10Y ~1.12%. Provi spreads another 1-2bps wider after 4bp move on Friday -supply unlikely unless mkt tone improves.
News headlines
- K. Chaos Infecting Markets as Pound Extends Its Record Loss (Bloomberg) Traders have had three days to digest the Brexit vote, and the pound’s slide just keeps getting steeper. Sterling dropped 3.5 percent to $1.3205 at 12:30 p.m. in London on Monday, after reaching a three-decade low of $1.3186 that surpassed its weakest levels during the panicked selling on Friday that followed the U.K.’s decision to leave the European Union. The turmoil extended that day’s unprecedented 8.1 percent tumble and showed that Chancellor of the Exchequer George Osborne’s attempts to calm markets failed to cancel out the effects of the paralysis spreading through U.K. politics.
- Oil prices ease again after Brexit vote (Reuters) Oil prices slipped on Monday as market participants absorbed the shock of Britain’s vote to leave the European Union though some analysts said Brexit would have a limited impact on global fuel demand. Brent crude futures were down 35 cents at $48.06 a barrel by 1123 GMT. U.S. crude was down 42 cents at $47.22 a barrel. Both crude benchmarks slumped about 5 percent on Friday amid plunging global financial markets after the British referendum results gave an unexpected 52 percent to 48 percent victory to the campaign to take Britain out of the EU.
- China Weakens Yuan Fixing by Most Since August as Dollar Surges (Bloomberg) China weakened its currency fixing by the most since last August as global market turmoil spurred by Britain’s vote to leave the European Union sent the dollar surging. The People’s Bank of China set the reference rate 0.9 percent weaker at 6.6375 a dollar. A gauge of the greenback’s strength jumped 2.4 percent in the past two days, the most since 2011, as the British pound and the euro tumbled. The yuan dropped 0.3 percent to 6.6473 as of 6:44 p.m. in Shanghai, heading for its weakest close since December 2010.
- Fed’s Yellen pulls out of ECB gathering in Portugal (Reuters) Federal Reserve Chair Janet Yellen is no longer due to speak at a global central bank summit starting on Monday, the second high-profile defection after the Bank of England’s governor pulled out following Britain’s vote to leave the European Union. An updated version of the program of the event, organized by the European Central Bank, showed on Monday that a panel with Yellen, ECB President Mario Draghi and BoE Governor Mark Carney had been taken out. Carney had canceled his attendance over the weekend
- Hoarding Cash in Vaults Seen More Attractive After Brexit Vote (Bloomberg) Investors will consider hoarding cash in vaults as government bond yields fall deeper into negative territory following the U.K.’s vote to leave the European Union, according to Talanx AG, Germany’s third-biggest insurer. “Storing physical cash as an alternative to paying negative interest rates does look increasingly attractive,” Chief Financial Officer Immo Querner said in an interview.
- Credit Markets Were Much Less Prepared for Brexit Than Stocks (Bloomberg) Have credit investors become so inured to years of cheap money and central bank bond buying that they simply sleepwalked into one of the biggest risks to financial markets in years? The credit markets shrugged off Britain’s referendum on European Union membership, according to Bank of America Corp. analysts led by Michael Contopoulos.
Overnight markets
- Overview: US 10yr note futures are up 0.6374% at 133-7, S&P 500 futures are down -0.58% at 2006.75, Crude oil futures are down -1.99% at $46.69, Gold futures are up 0.84% at $1333.5, DXY is up 1.12% at 96.518.
US Economic Data
- 8:30 AM: Advance Goods Trade Balance, May, -60.6b, est. -59.4b (prior -57.5b)
- 9:45 AM: Markit US Service PMI, June, est. 51.9 (prior 51.3)
- Markit US Composite PMI, June, (prior 50.9)
- 10:30 AM: Dallas Fed Manf. Activity, June, est. -15.0 (prior -20.8)
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