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Market update

US tsys opening higher, curve slightly steeper led by 5Y 10Y trading just below key 2.32% resist (2.315 -0.5bps). Core Euro bonds higher, bund futures eclipsed prev high 153.34 in early European session despite positive Greek news (reform vote see above). large month end extensions Volumes way below avg in tsy futures according to MNI. Key events for today – initial claims & 10Y TIPS auction at 1:00. In Canada, GOCs lower after relatively upbeat May retail sales rose 1.0% vs 0.6% exp, thou is real terms sales were up a more modest 0.4% and car sales accounting for a bulk of the overall increase, rising 2%m/m.

International news

•UK retail sales slip unexpectedly in June, second quarter soft (Reuters) British retail sales suffered an unexpected dip last month as consumers bought fewer household goods, pushing the annual rate of spending growth for the quarter to its lowest in more than two years.

•Tsipras secures backing of Greek MPs for crucial reforms (FT) The Greek parliament backed a second round of reforms demanded by creditors early on Thursday but the vote revealed a deepening rift in the radical leftwing Syriza party of Alexis Tsipras, the prime minister.

•How a Chinese Company Slipped on Canada’s Oil Sands (WSJ) China’s Cnooc Ltd. knew it was buying into trouble when it acquired Canada’s Nexen Inc. in 2013. It is now finding out just how much.

Market update

US tsys trading lower, US 10Y 2.40% (+2bps), tsy 5/30 curve steeper after reaching flattest lvls since mid June yest. Stocks higher, China (Shanghai comp) up for 4th day, gold higher as well first time in a week, recouping fraction of yest steep losses. Quiet day in terms of data both in Can & US so flows likely dominated by US corp deal pricing after yest saw $14.5bln in new issuance including $10.5bln UnitedHealth (A3/A+). Core Euro bonds trading lower led by UK gilts on long Gilt supply. In Canada, GOCs are lower , curve steeper – front end solid, BA futures pricing in ~50% odds of another 25bp cut by year end. BOC auctions $3.3bln in reopened Sep 20s with the roll 15.3/15.1

International news

• Gold firmer as dollar rally (FT) Gold is recovering some ground after its swift retreat, while European and Asian stocks are mixed as futures show Wall Street flirting with record levels.

• Treasury Buyers Foreseeing September Rates Liftoff Flatten Curve (Bloomberg) Treasury investors are starting to believe in a September interest-rate increase again.Futures show a 42 percent chance the Federal Reserve will raise borrowing costs during that month, up from 35 percent odds a week ago, as Greece’s bailout agreement clears one of the obstacles to higher rates.

• How China Market Thinned as It Plunged (WSJ) China may have the world’s second-biggest stock markets after the U.S., but at one point during a roller-coaster ride for investors this month only 93 of 2,879 listed companies were freely tradable—about the same number as trade in Oman.
Overnight markets

Market update

US tsys trading lower, curve ~0.5bps flatter , German 10Y bunds lower, EU periph spds tighter on ‘risk on’ as hopes rise for Greek deal. US 10Y close 2.40% (+2.3bps), short lived bounce after weaker Durable Goods (-1.8%, down in 3 out of 4 mnths). Fed gov Powell comments also pressuring bonds. Large retail pharmacy CVS Health (Baa1/BBB+) filed a shelf for ~20bln offering to fund purchase of Omnicare. Latest JPM Client Survey remains net short but lower than last week, Active Survey showed fewest net shorts since May 26th. In Canada, GOCs are lower , spds ~3bps wider vs tsys even as there is no cdn data, corp supply still factor with ‘Sea to Sky’ Hwy, Kraft deals poss today. CWB 5Y dep note yest was well received (~30% fills) tightened ~1bp in secondary – seems like last time a deal broke sign tighter was Allied Properties. Provi spds tighter yest, unch this morn with supply a possibility.

International news

• China June factory activity shows signs of stabilization (Reuters) China’s factory activity showed signs of stabilizing in June, with two private surveys suggesting the economy may be regaining some momentum even as many analysts expect further policy support to ensure the recovery becomes more sure-footed.

• Syriza Members Warn Alexis Tsipras Against Betrayal With Greek Bailout Compromise (WSJ) To avert a default and possible exit from the eurozone, Greek Prime Minister Alexis Tsipras must sell Germany’s chancellor, Angela Merkel, on his plan to fix Greece’s finances.

• Europe’s Greece-Proof Economy (WSJ) Greece may be dominating the headlines, but the eurozone economy is proving quietly resilient. Tuesday’s flash eurozone purchasing managers index for June rose to 54.1 from 53.6 in May, its highest level for four years, data provider Markit said. France’s PMI hit a 46-month high at 53.4, while Germany’s bounced to 54.0.

• Beijing Tries an Old Script in Debt Drama (WSJ) China is bailing out the nation’s heavily indebted local governments, relying on trusted methods to keep its financial system stable despite promises to allow market forces to play a greater role.

• Canadian mining industry feeling the sting from China’s steel surplus (G&M) The steel industry is about to go from bad to worse. China, the world’s biggest consumer of steel, needs less metal. The Chinese housing market, responsible for using the bulk of steel, is bulging with empty properties.

Overnight markets

• Overview: IG24 5Y 65.1/65.5 (+0.05), US 10yr note futures are down -0.31% at 125-14, S&P 500 futures are up +0.18% at 2116.50, Crude oil futures are down -0.96% at 59.80, Gold futures are down -0.41% at $1179.30, DXY is up +1.13% at 95.364.

• US BANK CDS (5yr): BAC 68/71 (-1), GS 86/89 (-2), MS 77/80 (-1), C 77/80 (-2), JPM 64/67 (-1), WFC 49/52 (+0)

US Economic Data

• Durable goods orders decreased in May by -1.8%, below expectations of -1.0% MoM (0.5% vs 0.5% Ex Trans.) versus revised April -1.5% MoM (-0.3% Ex Trans.).
• Nondefense capital goods ( New Orders) rised by 0.4% in May, they were expected to increase 0.5% MoM (0.3% MoM vs 0.5% for Shipped) this is compared to -0.3% (NO) and 0.3% (S) for the previous month revised data.
• FHFA House price index is forecasted to increase 0.5% in April versus previous month 0.3%.
• Markit US Manufacturing PMI (Preliminary) is forecast at 54.1 for June, 0.1 point higher than previous month.
• New home sales are forecast at 523K (1.2% MoM) in May versus April 517K (6.8% MoM).
• Richmond Fed Manufacturing activity index is expected at 4 in June better than May (1).

Canadian Economic Data

• There is no major economic data 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, Pierre-Olivier Boulanger
Institutional Bond and Equity Desk
CTI Capital Valeurs Mobilières Inc.

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