Market Update
US tsys higher, recovering some of Friday’s late selloff, with the US 10Y 1.615 (-1.5bps), and longs outperforming. Prices rising off the lows despite July PCE core coming in @1.6% vs 1.5% exp and June Personal Spending revised higher to 0.5%. Bear flattening on Friday after Yellen raised odds of a rate hike at the Sep meeting to ~30%. This Friday’s August employment report is in focus and could easily tip the scales to a Sep hike should the figure come in above the 160k after the solid 255k rise in July. GOCs higher after the US data led by 10s which are ~1bp tighter on the curve, 5s lagging after Friday’s 3bp cheapening which accelerated in the selloff during the aft session. We put out a comment late Friday noting how cheap 5s were on the curve in the face of deteriorating fundamentals – action seems to be driven more by the repricing in the US. Quiet in provis on Friday with spds firmly in a range. CIBC & TD both issuing in USD this morn: CIBC 3Y @~85 over tsys & TD 2Y @~70.
News headlines
- European Stocks Fall as Fed Outlook Lifts Dollar; Oil Declines (Bloomberg) The Fed effect reverberated through markets, sending stocks in Europe and developing economies lower while the dollar gained for a second day. Gauges of stocks and currencies in emerging markets sank to their lowest levels in at least three weeks after Federal Reserve officials spurred bets on a U.S. interest-rate increase in September. The Bloomberg Dollar Spot Index extended its biggest jump since June, while oil led declines in commodities. Japan’s Topix index of shares rose after central bank chief Haruhiko Kuroda reiterated a pledge to boost monetary stimulus if needed.
- Oil falls towards $49 on high output, strong dollar (Reuters) Oil fell towards $49 a barrel on Monday, pressured by high output from Middle East OPEC members and as a stronger U.S. dollar weighed on commodities. Iraq, which has exported more crude from its southern ports in August, will continue ramping up output, its oil minister said on Saturday. Top exporter Saudi Arabia has kept output at around record levels this month.
- Currency Traders Can’t Lose as Strategies Reap Big Gains (Bloomberg) Everyone’s a winner in the $5.3 trillion-a-day global currency market this year. For just the second time in the past decade, three major foreign-exchange trading strategies are all producing positive returns. The carry trade, in which investors borrow in Group of 10 currencies with low interest rates and use the proceeds to buy assets with higher yields, is on pace for its biggest annual gain since 2012, according to Deutsche Bank AG index data. Trades that buy undervalued currencies and sell expensive ones, and tactics that latch onto foreign-exchange trends, are also making money.
- Central Bankers Spurn Call for Radical Approach at Jackson Hole (Bloomberg) Central bankers aren’t retreating from the fight against low inflation, although they’re wary of launching a fresh assault on any daring new fronts. Faced with disappointing growth after years of ultra-low interest rates, Federal Reserve Chair Janet Yellen and her peers who met this weekend in Jackson Hole, Wyoming, re-affirmed their belief in power of monetary policy to stop economies from slipping into deflation. They were less keen on academic proposals that included the abolition of cash, raising their inflation targets, or keeping permanently large balance sheets.
- S. SEC paid $3.75 million to BHP Billiton whistleblower: report (Reuters) The U.S. Securities and Exchange Commission paid a BHP Billiton (BHP.AX) (BLT.L) insider $3.75 million for detailed information in an investigation into alleged bribery of Asian and African officials, the Australian Financial Review reported on Monday. Citing legal sources, the newspaper report said it was the first time an employee of an Australian company had received a U.S. whistleblower bounty.
- Canadian farmers, already facing low commodity prices, confront China threat to canola exports (Financial Post) Canadian farmers are facing an uncertain global economic climate. Even as China — this country’s No. 2 export market — tightens rules on shipments of canola over contamination concerns, commodity prices are dipping at home, which will cut into the profits of both Canadian growers and equipment makers. But even before there were concerns over a canola crunch, North America’s agricultural sector was already exhibiting signs of growing pains. Agricultural costs had been going up over the past 10 years, pushed higher by land prices and construction activity, as well equipment upgrades.
Overnight markets
- Overview: US 10yr note futures are up 0.226% at 131-22, S&P 500 futures are up 0.1% at 2170.75, Crude oil futures are down -1.66% at $46.85, Gold futures are down -0.16% at $1323.8, DXY is up 0.21% at 95.764.
US Economic Data
- 8:30 AM: Personal Income, July, 0.4%, est. 0.4% (prior 0.2%, revised 0.3%)
- Personal Spending, July, 0.3%, est. 0.3% (prior 0.4%, revised 0.5%)
- PCE Core, m/m, July, 0.0%, est. 0.1% (prior 0.1%)
- PCE Core, y/y, July, 0.8%, est. 1.5% (prior 1.6%)
- 10:00 AM : Dallas Fed Manufacturing Activity, August, est. -3.9 (prior -1.3)
Canadian Economic Data
- There is no major economic data release 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