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Market Update

Tsys weaker, giving up early gains which saw the 10Y reach as low as 2.64% and then reverse back to 2.76% – now ~2.73% on 5x avg volume in TY futures (>1.6MM contracts). Risk off tone as global equity selloff continues, Europe down 2%, S&P futures -26 – well off overnight lows, while the USD is stronger for a second day, the DXY reversing losses to trade at weekly high.  The volatility spike also continuing , the VIX index 49.21 after lingering below 15 since August. 

News headlines

U.S. Stocks Sink Most Since 2011 as Rout Deepens: Markets Wrap (Bloomberg) U.S. stocks plunged the most in 6 1/2 years, with the Dow Jones Industrial Average sinking more than 1,100 points, as the equity selloff reached a fever pitch amid rising concern that inflation will force interest rates higher. Treasuries rallied and gold rose on haven demand.

Volatility Jump Has Traders Asking About VIX Note Poison Pill (Bloomberg) The Cboe Volatility Index’s biggest rally ever is raising thorny questions about the future of exchange-traded products tied to the gauge. An ETP meant to mirror moves in the front of the VIX’s futures curve plunged more than 75 percent in after-hours trading following an 80 percent spike in contracts that comprise its underlying index during the trading day, potentially putting in play triggers that would enable the fund’s owners to liquidate it to avoid losses.

U.S. Stock Rout Has Fed Interest-Rate Signals Edging Lower (Bloomberg) Traders are signaling that the abrupt pullback in high-flying risk assets is likely to weigh on interest-rate policy as Federal Reserve Chair Jerome Powell takes the helm. That’s the story from Eurodollar futures, where the spread between December 2018 and 2019 contract yields fell by three basis points Monday, the most this year. The move indicates reduced wagers on interest-rate increases next year as the S&P 500 posted its worst rout since 2011 after a painful slide last week. The market-implied odds of an interest-rate increase in the second, third and fourth quarters of 2018 also edged lower on Monday.

Oil Declines to Two-Week Low as Global Stock Rout Deepens (Bloomberg) Oil slid to a two-week low and headed for its longest losing streak in two months as a plunge in U.S. equities dragged other markets lower. Crude futures in New York fell a third day, sliding as much as 1.3 percent. Stock indexes from Japan to Germany tumbled on Tuesday after a frantic sell-off in U.S. shares sent the Dow Jones Industrial Average to its biggest loss in 6 1/2 years. Nonetheless, oil market conditions look “solid” thanks to production cuts by OPEC, according to Vitol Group, the world’s largest independent energy trader.

Bitcoin Dips Below $6,000 as Cryptocurrency Exodus Accelerates (Bloomberg) The rout in cryptocurrencies rolled on, sending Bitcoin to its lowest level since October, as worries over tighter regulation by U.S. authorities and central bankers elsewhere gave traders fresh reasons to sell after a brutal start to 2018. The selloff has now knocked more than half a trillion dollars from digital coins since early January. That’s shaken a nascent market whose core attraction — anonymity and decentralization — is being challenged as never before by regulators.

Toronto home sales drop 22 percent in January, but prices have steadied (Reuters) Home sales in Toronto fell 22 percent in January from a year earlier as rising interest rates and tighter mortgage rules weighed on demand, but prices have stabilized as stubborn sellers and tight supply kept the correction in check.

WestJet’s revenue rises 10 percent as passenger traffic grows (Reuters) Canada’s second largest airline said on Tuesday revenue passenger miles — a measure of passenger traffic — rose 8.8 percent to C$6.33 billion ($5.05 billion) in the quarter ended Dec. 31. WestJet has worked on growing its fleet and attracting more customers as it locks horns with rival Air Canada.

Jerome Powell sworn in as chairman of Federal Reserve (CBC) Jerome Powell has been sworn in as the 16th chairman of the Federal Reserve in a brief ceremony in the Fed’s board room. In a short video message, Powell pledged to “support continued economic growth, a healthy job market and price stability.” Powell took the oath of office from Randal Quarles, the Fed’s vice-chairman for supervision, in a ceremony that was attended by Fed staff and Fed board member Lael Brainard.

Overnight markets

Overview: US 10yr note futures are up 0.49% at 121-28, S&P 500 futures are down -0.2% at 2602.5, Crude oil futures are down -1.26% at $63.34, Gold futures are up 0.1% at $1337.9, DXY is up 0.3% at 89.82, CAD/USD is up 0.14% at 0.7964.

US Economic Data

Canadian Economic Data

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, Hugues Savard

Institutional Bond and Equity Desk
CTI Capital Valeurs Mobilières Inc.

Tel : (514)-861-0240
Fax: (514)-861-3230

Market Update Tsys trading firmer, near highs of session  on heavy volume (667k TY), curve steeper led by the 5Y10Y  2.834 (-0.7bps). EGBs higher amid talk of asset allocation trades out of stocks as European stocks are down 1.3%, crude  down another 0.65 @ 65.09. Bunds higher outperforming tsys, 10Y tsy/bund spd above 210 for the first time since last April, despite better than exp Eurozone/German Markit Service PMI. GOCs lower,~1.5bps wider vs tsys, 10Y 2.37%. Provis  0.5bps wider, Ontario longs trading down @ 69.5. Overall spreads have held in fairly well considering the volatility in rates. 

News headlines

Stock Selloff Deepens; Dollar Steady as Gold Gains: Markets Wrap (Bloomberg) Global stocks extended the biggest selloff since 2016, with European and Asian equities slumping and futures pointing to another leg down for U.S. share at the open. Treasuries and the dollar stabilized while oil fell and gold rose. Futures for both the S&P 500 Index and Dow Jones Industrial Average dropped, signaling more losses to come. The Stoxx Europe 600 Index retreated for a sixth day in the longest losing streak since November, following similar moves across Asia as both regions took their cue from the U.S. rout on Friday. Yields on core government bonds in Europe fell, and those of 10-year Treasuries also edged lower. The pound slumped after data and the yen gained with so-called safe-haven assets.

How Spiking Bond Yields Could Topple a Stock Market Rally (Bloomberg) You may have heard: bond yields are surging. It’s sowing extreme angst in U.S. equities, which last week fell the most in two years. And though the tumble in the S&P 500 may be nothing but a breather, concern is mounting that the Treasury market’s travails are becoming an inescapable portent for stocks. Selling resumed Sunday night as index futures opened lower, a week after yields on 10-year Treasuries climbed to a four-year high of 2.84 percent. Here are some thoughts on why that can be bad for equities.

Euro-Area Companies Boost Jobs as Output Nears 12-Year High (Bloomberg) Economic momentum in the euro area surged to the fastest pace in almost 12 years, pushing firms to pile on the most additional workers since the start of the millennium. A composite Purchasing Managers’ Index rose to 58.8 in January from 58.1 in December, IHS Markit said. That unexpectedly beat the previous flash estimate of 58.6, with the revision driven mainly by better-than-expected momentum in the service sector, led by Germany.

Merkel, SPD Push Ahead in Government Talks After Missed Deadline (Bloomberg) German Chancellor Angela Merkel resumed talks Monday on extending her government alliance with the Social Democratic Party, sending efforts to break the country’s political deadlock into overtime. With Merkel’s fourth term hanging in the balance, a Sunday target date for concluding a coalition pact came and went as the SPD sought concessions on labor and health-insurance rules. The prospects of a deal on Monday are “fifty-fifty,” Social Democrat lawmaker Karl Lauterbach, a key negotiator on health care, said on ZDF television.

Broadcom Raises Qualcomm Hostile Bid to About $121 Billion (Bloomberg) Broadcom Ltd. has raised its bid for Qualcomm Inc. to about $121 billion, in an attempt to force what could be the largest-ever technology deal. The new offer of $82 a Qualcomm share will be Broadcom’s final offer, according to a statement Monday. The deal would take the form of $60 in cash and the remainder in Broadcom shares.

Canada’s PM talks tough on NAFTA, repeats he could walk away (Reuters) Canadian Prime Minister Justin Trudeau took a tough line on NAFTA on Friday, repeating that he could walk away if he was not happy with talks to modernize a pact the United States contends needs major changes.

Scotiabank expects up to $6.5 billion excess capital by 2020 (Reuters) Bank of Nova Scotia expects to generate C$7 billion to C$8 billion ($6.5 billion) of excess capital by 2020, giving it the opportunity to return capital to shareholders or make acquisitions, its chief financial officer said.

‘Still early days’: Toronto housing braces for full impact of stress tests (BNN) Canada’s largest housing market has lived through its first month under new stress tests, and observers say while sales activity cooled dramatically in January it was far from a “dead market.” With some home purchases pulled forward into the final months of 2017 as buyers attempted to beat the Jan. 1 stress test deadline, Toronto’s market is being closely watched for signs of weakness.

Overnight markets

Overview: US 10yr note futures are up 0.155% at 120-30, S&P 500 futures are down -0.42% at 2745.25, Crude oil futures are down -0.66% at $65.02, Gold futures are up 0.18% at $1339.7, DXY is up 0.1% at 89.286, CAD/USD is up 0.01% at 0.8046.

US Economic Data

Canadian Economic Data

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, Hugues Savard

Institutional Bond and Equity Desk
CTI Capital Valeurs Mobilières Inc.

Tel : (514)-861-0240
Fax: (514)-861-3230

Market Update Tsys slightly higher before payrolls, 10Y 2.78% (-1.2bps), futures near highs on heavy volume. European equities down 1.0%, S&P futures -16, gold weaker, crude unch. Deutsche Bank -5.0% on Q4 earnings & revenues miss. Core EGBs lower despite equities and weaker ECO data, 10Y gilt +3bp @ 1.56%. GOCs  slightly higher in line with tsys, 10Y 2.36%. Yesterday yields spiked higher, 10Y largest selloff since Sept to 2.38% the highest since May ’14, and underperforming the decline in tsys as the 30Y tsys rose above 3.0% for the first time since May. Provis fairly contained despite the move higher in GOC yields, rapid flattening in 10s30s.  

News headlines

Bond-Market Pain Reaches 30-Year Treasuries as Yield Breaches 3% (Bloomberg) The benchmark 10-year U.S. yield hurtled toward 2.8 percent, setting fresh highs since 2014, and the 30-year yield broke through 3 percent for the first time in eight months. Treasuries found little support throughout the trading session — no more month-end buyers like pensions and index funds to step in, and little sign of demand from Asian buyers. Most traders were content to let the bear-market narrative run its course after the worst January for the world’s biggest bond market since 2009.

Deutsche Bank Investors See No Silver Lining After Results Slump (Bloomberg) Deutsche Bank AG investors searching for good news after the bank’s third straight annual loss found little to give them optimism. The Frankfurt-based lender, which had already guided for a slump, surprised with revenue that fell to the lowest in seven years and declines at businesses from transaction banking to equity derivatives. Even cost control — a key feature of Chief Executive Officer John Cryan’s tenure — was worse than expected.

Dollar Gains Before Jobs Data; Stocks Extend Drop: Markets Wrap (Bloomberg) Stocks in Europe declined as a bond selloff deepened across the continent. The dollar rebounded from three days of losses and Treasuries steadied before U.S. jobs data that may give further clues on the Federal Reserve’s rate path. The Stoxx Europe 600 Index dropped for a fifth straight day, the longest streak since November, as heavyweights Deutsche Bank AG and BT Group Plc slumped after disappointing results. Germany’s DAX gave up the year’s gains, capping the worst weekly decline since 2016. Futures on the S&P 500 also slipped. Bund yields reached a two-year high as core European bonds fell along with gilts, while the euro and pound weakened. Japanese debt gained and the yen declined after the Bank of Japan intervened to stem the rise in rates.

Oil Near $70 as U.S. Shale Surge Looms Over Bullish Banks (Bloomberg) Brent crude traded near $70 a barrel as the specter of expanding U.S. supply was weighed against Wall Street banks’ growing faith in a price rally. The benchmark grade is on course to end the week lower, after being whipsawed by concern about rising American production and optimism over rosy outlooks painted by forecasters including Goldman Sachs Group Inc.

Scotiabank expects up to $6.5 billion excess capital by 2020 (Reuters)  Bank of Nova Scotia expects to generate C$7 billion to C$8 billion ($6.5 billion) of excess capital by 2020, giving it the opportunity to return capital to shareholders or make acquisitions, its chief financial officer said.

Canada manufacturing growth strongest in nine months in January (Reuters) The pace of growth in the Canadian manufacturing sector picked up at the start of the year to its highest level in nine months as measures of new orders and employment rose in January, data showed on Thursday.

Stock futures edge lower as gold falls (Reuters) Stock futures pointed to a slightly lower opening for Canada’s main stock index on Friday as spot gold prices edged lower, led by a rise in the U.S. dollar.

Overnight markets

Overview: US 10yr note futures are down -0.026% at 121-06, S&P 500 futures are down -0.62% at 2805, Crude oil futures are down -0.12% at $65.72, Gold futures are up 0.07% at $1348.9, DXY is up 0.2% at 88.846, CAD/USD is up 0.39% at 0.812.

US Economic Data

Canadian Economic Data

There is no Canadian 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, Hugues Savard

Institutional Bond and Equity Desk
CTI Capital Valeurs Mobilières Inc.

Tel : (514)-861-0240
Fax: (514)-861-3230