cti2015header-morning comments web

US tsys mixed, curve steeper after ADP came in above exp. (200 vs 195), and before US$28bln 7Y auction at 1:00PM. Core Euro bonds slightly lower, German regional inflation came in higher than exp.  Yellen basically took a Fed rate hike in April off the table with her dovish testimony yesterday – consistent with the FOMC statement two weeks ago yet after a round of  more hawkish testimony from the likes of Bullard & Williams. GOCs opening lower with 10s ~2bp weaker on the curve. Provis opening 1bp tighter on ‘risk on’, after closing 1.5bps wider yest on the strong rally in GOCs. Supply is likely today, we expect the 10Y sector as it looks attractive on an all in yield basis and considering the steepening in 10s30s.

News headlines

  • Cautious Yellen drives world stocks near 2016 peaks (Reuters) World stocks climbed near the highest levels this year on Wednesday as investors rowed back expectations for how fast and how far U.S. interest rates might rise, bruising the dollar and boosting sovereign bonds. Wall Street ESc1 was set to build on Tuesday’s gains, which saw the S&P 500 recorded its highest close of the year after Federal Reserve Chair Janet Yellen urged caution on further rate hikes in the world’s largest economy amid calls from some policymakers for faster action.
  • Oil prices rise with riskier assets on weak dollar (Reuters) Oil futures edged up on Wednesday to near $40 per barrel as a weaker dollar spurred interest in riskier assets and the International Energy Agency said expectations for a deluge of oil from Iran were misplaced. Brent futures LCOc1 climbed 46 cents to $39.60 a barrel as of 1000 GMT after settling down $1.13 in the previous session Brent futures LCOc1 climbed 46 cents to $39.60 a barrel as of 1000 GMT after settling down $1.13 in the previous session
  • Chinese economy shifting to new pace of growth: president (Reuters) Chinese President Xi Jinping said on Wednesday his country’s economy was at a new normal and shifting to a slower pace of growth than in the past. “The world economy is in the current situation going through a time of deep modifications and the situation is complicated and unstable,” he told a Czech-Chinese business forum in Prague in comments broadcast through a Czech interpreter.
  • Japan factory output down the most since 2011, recession feared (Reuters) Japan’s factory output in February fell the most since 2011 when a devastating earthquake ruptured the supply chain, stoking fears of another recession and renewing pressure on policymakers to take evasive action. The data followed passage of the fiscal 2016 budget on Tuesday, paving the way for Prime Minister Shinzo Abe to announce a new fiscal stimulus or drop the planned 2017 hike in sales tax after first quarter economic growth data due on May 18 is published.
  • Fed’s Kaplan says central bank should raise rates gradually and cautiously (Reuters) Dallas Federal Reserve President Robert Kaplan said on Tuesday he expects the U.S. economy to prove resilient this year but that the nation’s central bank should proceed gradually and cautiously in raising rates. “We will … power through, but there are issues over the horizon that have some downward impact on GDP, and will affect unemployment and inflation,” Kaplan said before an audience in Austin, Texas.
  • Canada ranks No. 2 among 10 countries for cost competitiveness: report (GlobeAndMail) Accounting giant KPMG says Canada has proven to be second most competitive market in a comparison test of 10 leading industrial countries. In its report, KPMG says Canada lags only behind Mexico when it comes to how little businesses have to pay for labour, facilities, transportation and taxes. The report, which compared the competitiveness of a number of western countries along with Australia and Japan, found that a high U.S. dollar has helped Canada stay affordable despite rising office real estate costs and lower federal tax credits.
  • DBRS cautiously optimistic about Canada’s big banks (GlobeAndMail) Credit-rating agency DBRS Ltd. delivered an upbeat assessment of Canada’s big banks, arguing that the geographic diversity of their operations will help them navigate a weak Canadian economy and a struggling energy sector. Four weeks after the Big Six reported their fiscal first-quarter results, amid fears of an oncoming recession and surging loan losses tied to oil and gas producers, DBRS offered a note of cautious optimism even as the price of oil remains below $40 (U.S.) a barrel.
  • Why Canadian LNG projects are inching forward despite low prices, sagging interest (FinancialPost) Canada’s nascent LNG export industry continues to inch forward, despite low commodity prices and speculation of sagging interest in the country’s natural gas resources. Two projects — on the West Coast, the other on the East Coast — provided some good news this week for a Canadian liquefied natural gas industry that has been weakened over the past year as major companies slashed capex budgets and liquefied natural gas prices fell in tandem with crude oil prices over the past year.
  • Bitcoin Technology’s Next Big Test: Trillion-Dollar Repo Market. (WSJ) Blockchain, the virtual currency’s digital ledger application, to be tested on repo transactions. Depository Trust & Clearing Corp., a firm at the center of Wall Street’s trading infrastructure, is about to give the technology behind bitcoin a big test: seeing whether it can be used to bolster the $2.6 trillion repo market. DTCC said in a statement Tuesday that it will begin testing an application of blockchain, the digital ledger originally used to track ownership and payments of the cryptocurrency bitcoin, to help smooth over problems in the crucial but increasingly illiquid corner of short-term lending markets known as repurchase agreements, or “repos.”


Overnight markets 

  • Overview: US 10yr note futures are down -0.0841% at 129-29, S&P 500 futures are up 0.55% at 2058.75, Crude oil futures are up 2.38% at $39.19, Gold futures are down -0.19% at $1235.1, DXY is down -0.2% at 94.969.

US Economic Data 

  • MBA Mortgage Applications variation was -1.0% and up from prior week.
  • ADP Employment Change number came in at a level of 200k, better than expected and down from prior month

 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