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Market Update

US tsys rebounding from o/n losses after Q2 GDP came in way below expectations 1.2% vs 2.5% exp with Q1 revised lower as well, US 10Y 1.51 (+1bps). GDP shortfall mainly an inventory story as inventories subtracted 1.2% while final sales were 2.4% vs 1.2% in Q1. Strong volume (~2x avg) overnite in TY futures (548K) after BOJ disappointment re stimulus, which led to huge losses in JGBs and pressured core European govt bonds lower. US stock futures lower post GDP, European stocks maintaining slight gains ~0.50% higher. GOCs higher, outperforming after May GDP came in -0.6% – the largest drop since March 2009 on lower oil production.  Provi spds opening unch after closing 0.5% tighter yest again, lower cda yields & lack of supply bringing in buyers.  Supply unlikely with early Cda close.                                                                                                                                       

News headlines                                                                 

• Yen Jumps as BOJ Disappointment Sinks Bonds; Europe Stocks Climb (Bloomberg) The Bank of Japan’s most anticipated policy announcement in years left investors underwhelmed, sparking a surge in the yen and sending government bonds and emerging-market stocks lower. Japan’s currency rallied against all of its 31 major peers after the BOJ kept its bond-buying target and policy rate unchanged, opting instead to boost purchases of exchange-traded funds.
• Eurozone GDP growth halves as French economy stalls (BBC News) Eurozone economic growth halved in the second quarter, but the 19-nation single currency area moved away from deflation. GDP rose by 0.3% between April and June, in line with expectations but below 0.6% growth in the first quarter. France, the eurozone’s second-largest economy, saw no growth after expanding by 0.7% in the first quarter. Eurozone inflation rose to 0.2% in July from 0.1% in June as a result of higher food, alcohol and tobacco prices. Data also revealed that the eurozone jobless rate remained at 10.1% in June.The economic growth figures are the first to be published since Britain voted to leave the European Union (EU).
• Brexit Sees U.K. Consumer Confidence Fall Most Since 1990 (Bloomberg) Sentiment among British households fell this month at its fastest pace in more than a quarter century, reflecting uncertainty about the outlook for the economy in the wake of the Brexit vote. The 11-point drop in GfK’s monthly gauge was the most since March 1990, when house prices were falling, interest rates stood at 15 percent and thousands were protesting in London against Prime Minister Margaret Thatcher’s poll tax. GfK said households have become more pessimistic about their personal finances and the economy since the U.K.’s decision to leave the European Union.
• Italian Jobless Rate Rises as More People Enter Labor Market (Bloomberg) Unemployment increased to 11.6 percent from 11.5 percent in May, national statistics agency Istat saidFriday in Rome. The median estimate in a Bloomberg survey of nine analysts called for 11.4 percent in June. The euro-area unemployment rate for June was 10.1 percent, according to a separate release from the European Union’s statistics office.
• TransCanada CEO says climate change policies not the answer for struggling pipelines (FinancialPost) TransCanada Corp. president and CEO Russ Girling, who knows a thing or two about pipelines, says climate change policies aren’t working to lessen the resolve of opponents who block regulatory approvals. “It’s not evident at the current time,” Girling said in an interview Thursday, when TransCanada released its results for the second quarter. “I hope that over time that will change. With folks like these, it doesn’t appear to be affecting their decision making.”
• Air Canada’s profit tops estimates as fuel costs fall (FinancialPost) Air Canada, the country’s largest airline, reported a better-than-expected quarterly profit on lower fuel expenses and cut its cost estimate for the year. Air Canada said it now expected full-year adjusted cost per available seat mile (CASM), which excludes fuel costs, to fall in the range of 2.75-3.75 per cent. The airline had previously estimated a decline of 1.75-2.75 per cent.
• Google-parent Alphabet’s revenue rise beats Street (TheGlobeandmail) Alphabet Inc., Google’s parent, posted a 21.3-per-cent increase in second-quarter revenue, exceeding analysts’ expectations, driven by strong advertising sales on mobile devices and for video content. The company’s shares rose 5 per cent to $804 (U.S.) in after-hours trading on Thursday. Alphabet’s consolidated revenue rose to $21.5-billion in the three months ended June 30, from $17.73-billion a year earlier. Analysts on an average were expecting revenue of $20.76-billion, according to Thomson Reuters I/B/E/S.
• Amazon’s Profits Grow More Than 800 Percent, Lifted by Cloud Services (NYTimes) Amazon reported net income of $857 million in its most recent quarter, the second quarter in a row in which it has shown a record profit. Its net income for those three months was also more than nine times the amount for the same period last year. For the second quarter, which ended June 30, Amazon reported net income of $857 million, or $1.78 a share, up from $92 million, or 19 cents a share, a year ago. Revenue jumped 31 percent to $30.4 billion from $23.19 billion a year ago. The results were well above the average estimate of analysts surveyed by Thomson Reuters of $1.11 a share in earnings and $29.55 billion in revenue.

Overnight markets  

• Overview: US 10yr note futures are up 0.1768% at 132-26, S&P 500 futures are down -0.15% at 2161.5, Crude oil futures are down -0.44% at $40.96, Gold futures are up 0.92% at $1353.5, DXY is down -0.91% at 95.856.

US Economic Data

• 8:30 AM: GDP Annualized, 2QA, q/q, 1.20%, est. 2.50% (prior 1.10%, revised 0.80%)
  •      GDP Price Index, 2QA, 2.20%, est. 1.90% (prior 0.40%, revised 0.50%)
  •      Personal Consumption, 2QA, 4.20%, est. 4.40% (prior 1.50%,  revised 1.60%)
  •      Core PCE, 2QA ,  q/q, 1.70%,  est. 1.70% (prior 2.00%, revised 2.10%)
• 9:45 AM: Chicago Purchasing Manager Index, July, est. 54 (prior 56.8)
• 10:00AM: University of Michigan Sentiment, July F, est. 90.2 (prior 89.5)

Canadian Economic Data

• 8:30 AM: GDP, May, m/m,  -0.60%, est. -0.50% (prior 0.10%)
  •      GDP, May,  y/y, 1.00 %, est. 1.20% (prior 1.50%)
  •      Industrial Product Price, June, m/m, 0.60%, est. 0.10% (prior 1.10%, revised 1.20%)
  •      Raw Materials Price Index, June, m/m, 1.80%, est. 3.00% (prior 6.70%, revised 7.00%)

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

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

News headlines

• Market Update
  • US tsys higher after weak durable goods orders (-4.0% vs -1.4% exp), curve flatter, US 10Y 1.57%, on average volume in TY futures.  Tsys pressured lower following announcement of Japan fiscal stimulus package by PM Abe which was not expected and comes at the high end of speculation at Y28T (USD 265B). JGB curve 6bps steeper with 5Y yields at record low -0.38% while the long end pressured by expectations of increased long issuance, with the WSJ citing the possibility of a new 50Y JGB. German govt bonds slightly higher, UK gilts sharply higher – solid 30Y German bund auction fully covered (b/c 1.2x vs 1.6x in June) @ 0.45% vs 0.65%. Also talk of negative net supply in Europe over next several weeks due to large EU cpns & redemptions (~85bln) FOMC this aft with the no change in FF rate expected thou the statement expected to reflect improved financial conditions (i.e. payrolls) since the June meeting. GOCs higher with the 10Y outperforming and the 10Y roll (26/25) 0.5bps tighter from yest at 10.8/10.6 – lots of trade yest at 11.1 on screens. Tomorrow the BOC auctions a new June 27 bond with the WI roll 12.5/12 – a new 2027 bond with a coupon  of ~1.15% would have a modified duration of 10.2 close to the June 29 bond (the 29/26 roll is 28bps).  Provi spds 0.5bps tighter to start – yesterday Ont issued $750mln in 2048s with a $450mln carve out at 97bps, now 96.5 bid.

   News headlines                                                                                              

  • Stocks Gain as Apple Earnings Boost Sentiment; Yen Drops on Abe (Bloomberg) European stocks rose with U.S. equity-index futures as Apple Inc.’s earnings fueled optimism over the outlook for the global economy. The yen weakened and Japanese shares rallied after the prime minister signaled he was committed to a $265 billion stimulus package.
  • PM Abe’s plan for $265 billion stimulus puts pressure on BOJ to ease (Reuters) Japan’s prime minister unveiled a surprisingly large $265 billion stimulus package on Wednesday to reflate the world’s third-largest economy, adding pressure on the central bank to match the measures with monetary stimulus later this week. The earlier-than-expected announcement to boost the flagging economy sent Japanese and other Asian stock markets higher while it weighed on the safe-haven yen, but lacked crucial details on how much of the package would be direct government spending.
  • K. Retail Sales Slump Most in Four Years After Brexit Vote (Bloomberg) U.K. retail sales fell at the fastest pace in more than four years in July, signaling caution among consumers after the Brexit vote last month. The Confederation of British Industry said its monthly retail sales index dropped to minus 14 — the lowest since January 2012 — from 4 in June. A gauge of the outlook showed stores anticipate a similar decline next month.
  • Deutsche Bank Flags Deeper Cuts as Trading Drop Hits Profit (Bloomberg) Deutsche Bank AG Chief Executive Officer John Cryan signaled the German lender may have to deepen cost cuts after second-quarter profit was almost wiped out by a slump in trading and restructuring costs.
  • Hong Kong June exports fall for 14th month, Brexit to deepen pain (Reuters) Hong Kong’s total exports in June fell for the 14th straight month, dampened by a slowdown in China, with the city’s factories bracing for more pain in coming months from the impact of Brexit. Open and trade-dependent economies in Asia such as Hong Kong are expected to be among the most vulnerable to a slowdown in global trade from Britain’s shock vote to leave the European Union as the effects filter through factory supply chains, analysts say.
  • UK’s Hammond says will take whatever action needed to support economy (Reuters) British finance minister Philip Hammond reiterated on Wednesday that he and the Bank of England would take whatever action was needed to support the economy as it entered “a period of adjustment” after the June 23 vote to leave the European Union.
  • BOE Flirts With Dating Website Algorithms to Sort Housing Data (Bloomberg) That’s according to a staff blog posted Wednesday that shows the Bank of England is borrowing from online dating apps to help assess its numbers. While the central bank’s economists have access to more data than ever, they sometimes struggle to sort it.

  Overnight markets

  • Overview: US 10yr note futures are up 0.0473% at 132-6, S&P 500 futures are up 0.25% at 2168.75, Crude oil futures are down -0.07% at $42.89, Gold futures are up 0.07% at $1329.2, DXY is up 0.11% at 97.259.

  US Economic Data

  • 8:30 AM: Durable Goods Orders, June,  -4.0%, est. -1.4% (prior -2.3%, revised -2.8%)

  Durables Ex Transportation, June, -0.5%, est. 0.3% (prior 0.3%, revised -0.4%)

  • 10:00 AM : Pending Home Sales, m/m, June, est. 1.2% (prior -3.7%)
  • 14:00 AM: FOMC Rate Decision, July 27^th, est. 0.25%-0.50% (prior 0.25%-0.50%)

   Canadian Economic Data

  • There is no major economic news 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