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Market update

US tsys lower curve steeper led by 5s (+3.5bps) after much stronger than expected  non-farm payrolls (275k vs 201k exp), US 10Y 2.185 (+4bps). European stocks mixed, but CSI Comp +2.0% on state buying according to story in FT (see below)& PBOC setting higher yuan fix for the first time in nine sessions. Euro bonds higher, 10Y bund/tsy spd ~4bps higher @ 164. Dovish comments from ECB talking about more QE if needed. GOCs lower,  employment +22.8k in Dec vs 8k exp., but building permits -19.6% vs -2.9%. Provis trading up after payrolls Ont 25s @ 98 after closing 1.5-2 bps wider yest.

News headlines

• Chinese Markets Rise After Volatile Opening (NYTimes) With Beijing’s grip slightly looser, Chinese markets steadied on Friday. Exchanges in Europe also rose modestly at the start, and futures trading indicated that Wall Street would open higher. Friday’s market action followed a Thursday-night decision by the Chinese government to stop using “circuit breakers” that were supposed to keep China’s markets from dropping disastrously over the course of a single trading day.
• German Industrial Output Drops Unexpectedly (WSJ) German industrial production declined unexpectedly in November and the trade surplus was below forecasts for that month, official data showed Friday, a sign that Europe’s largest economy is struggling to gain momentum after a weak third quarter.
• Apple shares fall to lowest level since October 2014 (FT) Apple’s share price fell to its lowest level since October 2014, as concerns about slowing growth in iPhone sales outweighed news of strong performance in the App Store last year. Shares in the world’s most valuable company fell close to $100 on Wednesday, compounding Tuesday’s falls after the Nikkei Asian Review wrote Apple had cut iPhone orders by as much as 30 per cent with suppliers.
• Retail investors pull billions out of global equity funds (FT) The amount of money retail investors pulled out of global equity funds hit a five-month high this week, as wild gyrations in mainland Chinese stock markets sent financial shockwaves around the world.
• Saudi Arabia is considering an IPO of Aramco, probably the world’s most valuable company (TheEconomist) Saudi Arabia is thinking about listing shares in Saudi Aramco, the state-owned company that is the world’s biggest oil producer and almost certainly the world’s most valuable company. Muhammad bin Salman, the kingdom’s deputy crown prince and power behind the throne of his father, King Salman, has told The Economist that a decision will be taken in the next few months. “Personally I’m enthusiastic about this step,” he said. “I believe it is in the interest of the Saudi market, and it is in the interest of Aramco.”
• Japan earnings fall for first time in 5 months (FT) Bad news for wages and consumption in Japan: in November real earnings slipped for the first time in five months, dashing hopes that modest rises during early autumn may be sustained. Real cash earnings – wages adjusted for inflation – fell 0.4 per cent year-on-year in November, figures from the ministry of health, labour and welfare show. This was the first contraction since June when they declined 3 per cent. Earnings had risen 0.4 per cent in October and in July they rose 0.5 per cent – the highest since late 2010.

Overnight markets

• Overview: IG25 5Y 93.096/93.663 (-2.63), US 10yr note futures are down -0.16% at 126-29, S&P 500 futures are up +1.09% at 1954, Crude oil futures are up +0.42% at 33.41$, Gold futures are down -1.00% at $1096.90, DXY is up +0.72% at 98.928.

 US Economic Data

•  US created 292,000 jobs in December; unemployment rate stays unchanged at 5.0%
• Manufacturing added 8,000 jobs last month. Unusually warm weather boosted construction payrolls, which increased 45,000.
• Retail payrolls rose only 4,300 as mild temperatures hurt sales of winter apparel.
• United States Average Hourly Earnings (MoM) below forecasts (0.2%) in December: Actual (0%)
• Data on wholesale inventories for November will be released at 10h00am
• Consumer credit data for November will be released at 15h00.

  Canadian Economic Data

• The value of Canadian building permits issued in November fell 19.6 per cent on widespread declines in the energy-producing province of Alberta, which had seen a boom in October
• Canada Net Change in Employment came in at 22.8K, above forecasts (10K) in December
• Canada national unemployment rate for December remained unchanged at 7.1 per cent.

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
Institutional Bond and Equity Desk
CTI Capital Valeurs Mobilières Inc.

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

Market update

US tsys opening higher again this morning on China turmoil (China comp -7.0%, decline in China currency) but have since given up most of the o/n gains, with the US 10Y @2.17% after falling to as low as 2.12 o/n. Tsys pressured in early NY trading on reversal in stocks and lower initial claims (-10K). Rich Fed Lacker (non-voting hawk) saying Fed can hike rates more quickly if needed. In Canada, GOCs slightly higher, not  getting much reaction from Poloz speech as he stressed that BOC could implement unconventional tools if needed but currency is primary adjustment mechanism so GOC curve ~1bps flatter 2s/5s. Provis out ~1bp , Ont 25s 97.5/96.5 – more talk of Ont 26 @ 1-1.5 vs Ont 25s so ~14.5 total pick.

News headlines

• Chinese Stock Plunge Forces a Trading Halt, and Global Markets Shudder (NYTimes) The market turmoil in China spread around the world, as global investors grew more anxious about the country’s currency and the health of its economy. Chinese stocks plunged on Thursday, by more than 7 percent, forcing officials for the second time this week to halt trading for the day — in this case, after just 29 minutes.

• China lets yuan fall faster, share trading suspended as prices tumble (Reuters) China allowed the biggest fall in the yuan in five months on Thursday, pressuring regional currencies and sending global stock markets tumbling as investors feared the Asian giant could trigger competitive devaluations from its peers.

• China Turmoil Has Traders Cutting Odds of Fed Rate Move by April (Bloomberg) The resurgence of Chinese stock-market turmoil in 2016 has investors increasingly betting that Federal Reserve officials will lose some of their resolve and delay future interest-rate boosts. Traders see a 43 percent chance that policy makers in Washington will lift the benchmark rate by their April meeting, down from 52 percent as recently as Tuesday. Investors back from holidays this week witnessed stock plunges in China that led authorities to close trading early twice. Turmoil caused by worries over the world’s second-largest economy last year helped convince the Fed to delay a rate increase from September to December.

• Oil slides below $33 to near 12-year low as China turmoil rattles investors (Reuters) Oil fell below $33 a barrel on Thursday for the first time since April 2004 as a fall in Chinese shares rattled investors already concerned by near-record production and massive stockpiles of unwanted crude and refined products. Oil prices have fallen by around 70 percent since mid-2014, hurting oil companies and governments that rely on crude revenue.

• World Bank Cuts Global Growth Forecasts (Bloomberg) The global economy will sputter along this year as China’s slowdown prolongs a commodity slump and contractions endure in Brazil and Russia, the World Bank said. The Washington-based development bank lowered its forecast for 2016 growth to 2.9 percent, from a 3.3 percent projection in June, according to its bi-annual Global Economic Prospects report released Wednesday. The world economy advanced 2.4 percent last year, less than a forecast of 2.8 percent in June and slower than the 2.6 percent expansion in 2014, the bank said.

• British Pound Falls Against Euro Despite Robust Service PMI Data (PSL) Pound sterling has slipped back against the euro in mid-week trade even as survey data from the UK economy confirms the labour market is tightening to levels the Bank of England can no longer ignore. Markit and the CIPS released their Service sector PMI data mid-week which came in below expectations but confirmed the labour market continues to tighten. With the services sector accounting for well over 70% of then UK economy this data provides an important pulse into the strength of the UK economy.

Overnight markets

• Overview: IG25 5Y 94.258/94.844 (+1.85), US 10yr note futures are up +0.10% at 126-31+, S&P 500 futures are down -1.96% at 1947, Crude oil futures are down -3.12% at 32.91$, Gold futures are up +0.90% at $1101.60, DXY is down -0.40% at 98.777.

US Economic Data

• United States Initial Jobless Claims came in at 277K, above forecasts (275K) in January 1
• The Bloomberg Consumer Confidence Index which measures views on the condition of the U.S. economy, personal finances and the buying climate will be released at 9h45am. (Prior: 43.6)
• Natural-gas inventories will be announced at 10h30am

Canadian Economic Data

•  Canada’s Ivey purchasing managers index data for December, scheduled to be released at 10ham

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
Institutional Bond and Equity Desk
CTI Capital Valeurs Mobilières Inc.

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

Market update

US tsys opening sharply higher thou off the highs after a much stronger than exp ADP (257k vs 195k), curve ~3bps flatter & US 10Y below 2.2% (2.193 -4.5 bps). Risk off tone o/n amid North Korea test, weak China PMI (50.2 vs 51.2). China equities actually rose on new rules on selling shares by institutions, but pressure on US futs on higher CNY fixing, 22 bps to the lowest lvl since apr 2011. GOCs higher, spds unch vs tsys except in longs which are lagging by ~1.5bps as the belly of the GOC curve outperforms. The BOC auctions 2Y notes at noon, reopening of the Feb 18s with the 2Y roll -0.4bps, 2Y yields ~10 bps lower since last auction Dec 9th while Cda/US ~4bps off recent Oct GDP wides @ -56bps. Provis only 0.5bps wider , Ont 25s 96.5 vs 96.

News headlines

• China December Caixin services PMI falls to 17-month low as new business cools (Reuters) Activity in China’s services sector expanded at its slowest rate in 17 months in December, a private survey showed on Wednesday, in a further indication that the world’s second-largest economy may be losing steam.

• North Korea says it successfully conducts hydrogen bomb test (CNN) North Korea says it has successfully tested a “miniaturized” hydrogen bomb. The Democratic People’s Republic of Korea announced the test on state TV hours after South Korea reported that an artificial earthquake had occurred 30 miles north of the DPRK’s nuclear-testing center. Some experts are skeptical of the claims, however, suggesting that North Korea’s state-run television likes to exaggerate or outright lie. In response to the news, the South Korean won weakened 0.8% to 1,197.20 per dollar, a near 5-1/2-year low.

• Brent crude oil slides below $35 for first time since 2004 (FT) Oil continued its volatile start to 2016 with Brent crude falling below $35 a barrel for the first time in more than a decade, surpassing lows reached in December as a seemingly relentless rise in global production overshadowed all other concerns. A rift between Saudi Arabia and Iran over the execution of a prominent cleric saw Brent, the international oil benchmark, reach almost $39 a barrel on Monday. But the rally was shortlived as the focus of traders and investors returned to the supply glut that has driven oil prices down 70 per cent since the middle of 2014.

• Valeant Names Howard B. Schiller Interim CEO (PR Newswire) Valeant Pharmaceuticals International, Inc. (NYSE: VRX) (TSX: VRX) today announced that Howard B. Schiller has been appointed interim chief executive officer of Valeant, effective immediately. Mr. Schiller served as Valeant’s chief financial officer from December 2011 through June 2015 and currently serves on Valeant’s Board of Directors. Valeant also announced that Robert Ingram, Lead Independent Director, will serve as interim chairman of the Board of Directors. J. Michael Pearson remains in the hospital where he is being treated for severe pneumonia, and as the timing of his expected return is uncertain, he will be on a medical leave of absence until further notice.

• ADP Says Companies in U.S. Added 257,000 Workers in December (Bloomberg) Companies added more workers than projected in December, indicating the U.S. job market had momentum as 2015 came to a close, according to a private report based on payrolls. The 257,000 increase in employment followed a revised 211,000 rise in the prior month, figures from the ADP Research Institute in Roseland, New Jersey, showed Wednesday. The median forecast of economists surveyed by Bloomberg called for an advance of 198,000.

• China Loses Its Grip on the Yuan (WSJ) China’s central bank set off heavy selling in the yuan Wednesday when it guided the currency to a fresh five-year low, sending it to its weakest level on record in offshore markets. The acceleration in the decline both within China and offshore comes as Chinese stocks fall sharply. The yuan’s unexpectedly rapid fall is the latest evidence investors are losing confidence in Beijing’s ability to cope with recent market turbulence.

• Euro Area Set for Robust 2016 Growth as Orders Fuel Hiring (Bloomberg) The euro area has entered a year of solid economic growth that may see companies expanding capacity to meet increasing demand, Markit Economics said. A Purchasing Managers’ Index for manufacturing and services unexpectedly rose to 54.3 in December from 54.2 in November, compared with a Dec. 16 estimate for a drop to 54, the London-based company said. The data suggest growth in the final quarter of 2015 was the fastest in 4 1/2 years, according to the report.

Overnight markets

• Overview: IG25 5Y 92.746/93.263 (+0.21), US 10yr note futures are up +0.26% at 126-18+, S&P 500 futures are down -1.65% at 1978.5, Crude oil futures are down -3.36% at 34.76$, Gold futures are up +0.58% at $1084.80, DXY is up +0.02% at 99.407.

US Economic Data

• The Mortgage Bankers Association (MBA) reports applications were down 27% for the week ending January 1 from two weeks earlier. The most recent week’s results include an adjustment to account for the New Year’s Day holiday, while the previous week’s results were adjusted for the Christmas holiday.
• ADP Private sector employment increased by 257,000 jobs from November to December vs 198K Expected
• Trade Balance above forecasts ($-44B) in November: Actual ($-42.4B)
• Markit Services PMI Final for Dec: Prior 53.7 will be released at 10ham
• Markit Composite Final PMI for Dec: Prior 53.5 will be released at 10ham
• ISM Non-Manufacturing PMI for Dec: Expected 56.0; Prior 55.9 will be released at 10ham
• Durables ex-defense, for Nov: Prior -1.5 pct will be released at 10ham
• Durable goods for Nov: Prior 0.0 pct will be released at 10ham
• Factory orders mm for Nov: Expected -0.2 pct; Prior 1.5 pct will be released at 10ham

Canadian Economic Data

• Canada’s merchandise trade deficit was narrower than economists forecast in November with shipments of automobiles and metals leading the first export gain in four months.The deficit of $1.99-billion followed an October shortfall that was pared to $2.49-billion from the initial reading of $2.76-billion, Statistics Canada said Wednesday in Ottawa. Economists surveyed by Bloomberg forecast a November deficit of $2.6-billion, based on the median of 15 estimates.

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, Pierre-Olivier Boulanger
Institutional Bond and Equity Desk
CTI Capital Valeurs Mobilières Inc.

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