cti2015header-morning comments web

Market Update

US tsys opening lower on avg volume in Ty1 futs, US 10Y 1.515%, giving back a little after yesterday’s 5bp rally post FOMC. Tsys pressured in Asian trasing despite lower Nikkei , mkts awaiting BOJ decision tomorrow. Crude lower for a 4th day after yesterday;s bearish inventory data. Mostly profit taking by Japanese banks in cash tsys according to MNI. In Europe tsys stabilized as bunds rose as long end supported by month end buying, bund curve narrowing to new lows. GOCs lower , lagging the move lower in tsys by 1-2bps across the curve, curve directionally steeper led by 10s after yesterday’s post Fed 3bp flattening. The BOC auctions a new June 2027 bond at noon with 10Y yields ~10bps off the lows and 5s10s at new lows ~42bps. As mentioned yest a new June 27 would have a mod duration of ~10.2 (assuming a 1.25% cpn) closer to June 29s – so keep an eye on the 29/10Y roll which has been grinding in steadily over the last week and trades @27.7bps vs the WI/10Y at 13. Provis well bid again to start – yest provis rallied after the Fed despite lower cda yields – Ont 48s issued at 97 on Tuesday now 95/94.

News headlines                                                                                      

  • Dollar Declines on Fed Outlook as S&P 500 Futures, Facebook Gain (Bloomberg) European and Asian currency markets reacted to signals from the Federal Reserve that it will maintain a gradual approach to raising interest rates. The dollar extended losses, weakening against all but three of its 16 major peers, as bets on a rate increase in 2016 remained below 50 percent. Facebook Inc. climbed after reporting a 59 percent jump in sales. Banks led declines in the Stoxx Europe 600 Index after Lloyds Banking Group Plc said it planned to cut 3,000 more jobs and warned Britain’s vote to leave the European Union may hurt earnings and dividends. Industrial metals advanced, while oil traded below $42 a barrel in New York.
  • Oil hits 3-month lows below $43 as oversupply weighs (Reuters) Oil prices fell to three-month lows on Thursday as producers continued to pump more than needed, filling inventories, and economic growth prospects darkened. Brent crude oil LCOc1 was down 50 cents at $42.97 a barrel by 1010 GMT, after touching $42.88, its lowest since April 20. U.S. light crude CLc1 was down 20 cents at $41.72.
  • Fed leaves rates unchanged, says risks to outlook reduced (Reuters) The Federal Reserve left interest rates unchanged on Wednesday but said near-term risks to the U.S. economic outlook had diminished, opening the door to a resumption of monetary policy tightening this year. The U.S. central bank said the economy had expanded at a moderate rate and job gains were strong in June. It added that household spending also had been « growing strongly, » and pointed to an increase in labor utilization.
  • German inflation remains weak despite rise in July, state data suggest (Reuters) German consumer prices look set to rise further in July but remain weak, regional data indicated on Thursday, highlighting the limitations of the European Central Bank’s ultra-loose monetary policy. The German data is a further sign that the ECB may beef up its monetary stimulus and cut its deposit rate further into negative territory, Capital Economics analyst Jennifer McKeown said. The central bank is struggling to push the inflation rate close to it target of just below 2 per cent.
  • Higher prices drive major cash flow gains for Canada’s gold miners (FinancialPost) The return of the gold bull market in 2016 is driving massive cash generation for Canada’s largest miners of the metal. The biggest producers reported second quarter results on Wednesday night. And while the results were mixed compared to analyst expectations, a key theme was stronger cash flow and improving margins. Barrick Gold Corp., the world’s biggest gold miner, had adjusted earnings of US$158 million and a whopping US$274 million of free cash flow. Kinross Gold Corp. and Agnico Eagle Mines Ltd. also reported major improvements in cash flow generation.
  • TransCanada profit falls on costs tied to Columbia Pipeline deal (Reuters) TransCanada Corp TRP.TO, Canada’s second-largest pipeline company, reported a 14.9 percent decline in quarterly profit due to costs related to its acquisition of Columbia Pipeline Group CPGX.N. Net income attributable to the company’s common shares fell to C$365 million ($277.4 million), or 52 Canadian cents per share, in the second quarter ended June 30 from C$429 million, or 60 Canadian cents per share, a year earlier.
  • Potash Corp cuts profit forecast and slashes dividend, but says market has hit bottom (Financial Post) Potash Corp. of Saskatchewan Inc. slashed its dividend and its earnings guidance on Thursday as it continues to struggle with weak fertilizer prices. Neither move came as a shock to investors given the poor market conditions. However, the cuts were very significant. The Saskatoon-based company reduced its 2016 earnings forecast to between US40 and US55 cents a share, far below the prior level of US60 to US80 cents. The quarterly dividend was cut a whopping 60 per cent, bringing it to US10 cents a share. 

Overnight markets  

  • Overview: US 10yr note futures are down -0.0825% at 132-14, S&P 500 futures are down -0.03% at 2159.75, Crude oil futures are down -0.07% at $41.89, Gold futures are up 1.18% at $1350.3, DXY is down -0.56% at 96.505.

US Economic Data

  • 8:30 AM: Initial Jobless Claims, July 23, 266k, est. 262k (prior 253k, revised 252k)
    •      Continuing Claims, July 16, , est. 2136k (prior 2128k, revised 2132k)
  • 11:00 AM:  Kansas City Fed Manufacturing Index, July, est. 4 (prior 2)

 Canadian Economic Data

  • 8:30 AM: CFIB Business Barometer, July, 57.6, (prior 60.0)


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