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Market update

US tsys sharply lower, curve steeper, US 10Y 2.09 (+6bps) after China surprised mkts with a surprise rate cut, the fifth this year. Tsys were already lower pre PBOC decision, accelerating downward on heavy selling in 10Y futs ~8:30 (~15k contracts). Core Euro bonds lower led by 10Y gilts (+6.7bps) on retail sales/ supply indigestion as sales of GBP denominated debt were the highest since July with this week’s 50Y tap. GOCs lower with tsys, spds marginally tighter after weaker Sep CPI after gas prices fell 19% y/y. Provis opening 0.5bps tighter – Ont 46 106/105, Ont 45/25 bx 10.3/9.8. Royal Bank plans to issue USD 5Y fixed/FRN in the area of T+100, JPM also doing a USD 5Y fixed/FRN @ T+123.

News headlines

• China’s central bank cuts rates for sixth time since November (Reuters) China’s central bank cut interest rates for the sixth time since November on Friday in another attempt to jumpstart a slowing economy.

• Global stocks hit two-month high on dovish Draghi message (Reuters) The prospect of yet more European Central Bank stimulus pushed world stocks to a two-month high, the euro to a two-month low and left investors paying for the privilege of owning short-term Italian and Spanish bonds.

• US investors plough into high-yield junk bonds (FT) Investors are racing into higher-yielding junk bond funds at the fastest pace in four years, following a broad rally in equity and fixed income markets as concern that the US Federal Reserve will tighten policy this year is fading.

• Canadians stay home (and pay more) as loonie stumbles (G&M) The weak loonie is keeping more Canadians home. But if you’re sitting around reading, it’s costing you more. So is the shirt on your back. And just wait for higher car prices.

 Overnight markets

• Overview: IG24 5Y 73.103/73.886 (-2.493), US 10yr note futures are down -0.48% at 128-11, S&P 500 futures are up +0.78% at 2069.0, Crude oil futures are down -0.13% at 45.32, Gold futures are up +1.06% at $1178.5, DXY is up +0.36% at 96.726.

US Economic Data

• Markit US Manufacturing PMI (Preliminary) is forecast at 52.7 in October, 0.4 point lower than prior month.

Canadian Economic Data 

• CPI is down -0.2% MoM (+1.0% YoY) in September (-0.1% MoM and 1.1% YoY Expec) versus August 0.0% MoM (1.3% YoY).
• CPI core came in at 0.2% MoM (2.1% YoY) in September (0.3% MoM and 2.2% YoY Expec) compared to previous month 0.2% MoM (2.1% YoY).

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

Market update

US tsys rising off the lows with EGBs as Draghi says ECB will re-examine level of existing stimulus, US 10Y 2.027 (+0.3bps). German bunds outperforming, curve sharply steeper with 2Y at record low below -0.30% (-8bps), 10Y 0.54 (-2.7bps). Draghi seeing some risks to inflation expectations, could lower deposit rate again and/or expand QE pgrm beyond Sep 16 if needed. GOCs are higher, lagging the move higher in tsys by ~2bps in the short end, 10/30 back to recent steeps 81bps. Cda retail sales rose 0.5% in Aug vs 0.1% thou core sales were below exp @ 0.0% vs 0.2% exp. Provi spds wider , Ont 25s traded down @ 95 (+0.5bps), Ont 45/25 10/9.8 . Big move in NVCC yest ~5bps – TD 2.982/20 @ 236 from 252 last week – much of the move attributed to lack of supply and general tightening in credit (IG has narrowed 15 bps since Oct 1st).

News headlines

• ECB Haunted by Paradox as Draghi Weighs Risk of QE Signaling (Bloomberg) Mario Draghi’s challenge on Thursday is to show that he’s readier than ever to step up stimulus, without panicking investors over the euro area’s health.

• VW issues raise questions about ABS (FT) When Volkswagen’s emissions scandal broke in late September, the carmaker’s stock and bond prices plummeted. Yet a day later, almost unnoticed in the furore, it sold more than €800m of securities backed by Spanish loans.

• Why the shift in Treasury bond ownership matters (FT) Who is buying US government bonds and what are the market implications, ask strategists at TD Securities.

• TPP Is Surprising Vote of Confidence in Globalization (WSJ) Globalization has looked pretty sickly of late. Immigration, multinational companies and free trade are under fire from populists on both the left and right in Europe and the U.S. Trade activity is stagnant, with total exports and imports recently growing more slowly than global output.

• Don’t blame oil prices for Alberta’s deficit (FP) Alberta’s budget, to be unveiled Oct.27, will contain the province’s seventh deficit in the last eight years, most recently projected at $5.9 billion. A popular narrative blames declining oil prices for the government’s deteriorating financial situation.

• TransAlta Said to Have Talked to Potential Buyers for Months (Bloomberg) TransAlta Corp., the embattled Alberta power generator under pressure from regulators and because of its indebtedness, has held talks with more than one potential suitor in the past several months, people familiar with the matter said.

 Overnight markets

• Overview: IG24 5Y 77.214/77.846 (-0.894), US 10yr note futures are down -0.01% at 128-27+, S&P 500 futures are up +0.42% at 2017.0, Crude oil futures are up +1.44% at 45.85, Gold futures are up +0.06% at $1167.8, DXY is up +0.13% at 95.159.

 US Economic Data

• Initial jobless claims came in at 259K  for the week ending October 17th, lower than expected (265K) but slightly higher than prior week (256K).
• Continuing claims increased to 2170K from 2164K but was lower than expected (2186K).
• Chicago Fed National activity index came in at -0.37 in September (-0.20 expec.) and better than August revised number of -0.39.
• FHFA House price index is forecasted to increase 0.5%  MoM in August versus previous month +0.6%.
• Existing home sales are forecast at 5.39M (+1.5% MoM) in September versus August 5.31M (-4.8% MoM).
• Leading index is forecast at -0.1% in September less than August 0.1% increase.
• Kansas City Fed manufacturing index is forecast at -9 in October lower than September level (-8).

Canadian Economic Data 

• Retail sales went up 0.5% MoM in August, better than expectations of a 0.1% increase, after increasing 0.6% the previous month (revised 0.1% upward).

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

Market update

US tsys trading higher, US 10Y 2.05 (-2bps) on ‘risk off’ as China equities fell 3.0%, commodities lower, Japanese exports weak (see above)  – thou Nikkei rose 1.9% on spec of more BOJ easing. Core Euro bonds higher curves flatter led by 30Y bunds with 2Y lagging on weaker 2Y Schatz auction. GOCs higher, 10s ~4bps narrower on the curve before BOC – were not looking for any change in policy as the BOC is likely to point to a rebound in exports and an improvement in forward looking indicators. Provis opening unch, Ont 25s traded up earlier @94.5 – fairly remarkable given another 3bp rally yest. QC expected to price its 10Y EUR deal.

News headlines

• Japan export growth slows sharply, raising fears of recession (Reuters) Japan’s annual export growth slowed to a crawl in September as shrinking sales to China hurt the volume of shipments, raising fears that weak overseas demand may have pushed the economy into recession.

• ECB sees signs of thaw in bank lending (FT) A closely watched survey of the eurozone’s banks shows they are relaxing their loan standards for businesses, in a sign of growing confidence about economic prospects in the European currency area.

• Banks Facing Tough Times Pull Out Visa…Shares (WSJ) U.S. banks facing charges or losses this earnings season have been able to dip into a multibillion-dollar piggy bank—shares they hold in Visa Inc.— to offset the damage.

• Credit Suisse to Launch $6.3 Billion Capital Increase (WSJ) Credit Suisse Group AG announced plans on Wednesday to raise roughly 6 billion francs ($6.3 billion) in fresh capital and slash costs, as the Swiss bank delivered a disappointing set of quarterly results.

• Saudis Risk Draining Financial Assets in 5 Years, IMF Says (Bloomberg) Saudi Arabia may run out of financial assets needed to support spending within five years if the government maintains current policies, the International Monetary Fund said, underscoring the need of measures to shore up public finances amid the drop in oil prices.

 Overnight markets 

• Overview: IG24 5Y 76.676/77.297 (-0.128), US 10yr note futures are up +0.16% at 128-24+, S&P 500 futures are up +0.45% at 2029.5, Crude oil futures are down -1.99% at 45.37, Gold futures are down -0.09% at $1176.6, DXY is down -0.04% at 94.873.

 US Economic Data

• MBA mortgage applications came in this morning at 11.8% for the week ending October 16th, versus prior week -27.6% decrease.

Canadian Economic Data 

• Bank of Canada overnight lending rate decision will be release at 10:00 and is expected to remain at 0.50%.

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