IFO numbers from Germany continue to paint grim picture

JULY 26,2019


The latest IFO numbers from Germany continue to paint a grim picture, the lowest reading in 9 years. This morning the ECB left rates unchanged this morning, the ECB did open the door for a rate cut and said it is considering QE using other asset classes. We wait for the banks press conference this morning at  8:30. The initial reaction to the statant has been modest rally in Bunds, Treasuries.

The News Canada

  • CBC: Alberta's oil curtailment is keeping record differentials at bay: Cenovus CEO” (http://bit.ly/2JSanUO)  // Shane McNeil: “Alberta still needs to curtail oil production or risk widening the differential between Canadian heavy crude and the U.S. benchmark blend back to record levels, according to the chief executive officer of Cenovus Energy Inc. “I think that what’s really important for people to remember is that if we were to step away from curtailment today, we’d be right back in these US$40 or US$50 differentials that we were experiencing in [the fourth quarter],” Cenovus CEO Alex Pourbaix told BNN Bloomberg in a Thursday interview.”

The News International

  • REUT: “U.S. economic growth seen slowing in second quarter” (https://reut.rs/2SHKCsZ) // Lucia Mutikani: “The anticipated moderation in growth will come against the backdrop of rising risks to the economy’s outlook, especially from a trade war between the United States and China as well as slowing growth overseas, which are seen encouraging the Federal Reserve to cut interest rates next Wednesday for the first time in a decade.”

  • WSJ: “House Approves Debt-Ceiling Bill Despite GOP Dissent” (https://on.wsj.com/2OtD6no) // Andrew Duehren and Kate Davidson: “The legislation, which is expected to pass the GOP-controlled Senate next week, boosts spending by $320 billion above limits set in a 2011 budget law and suspends the debt ceiling until the end of July 2021. The Trump administration and House Speaker Nancy Pelosi (D., Calif.) secured the deal on Monday after weeks of negotiations. The bill passed with 284 votes, including 219 Democrats and 65 Republicans. Just 16 Democrats voted against the bill, while 132 Republicans opposed it, many citing concerns about the growing U.S. debt burden.”

  • WSJ: “Investors Pour Money Into Bond Funds at a Record Pace” (https://on.wsj.com/2Gv4oDi) // Jessica Menton: “Mutual funds and exchange-traded funds tracking bonds posted $12.1 billion of inflows for the week ended July 17, the 28th consecutive week of inflows. That brings the total so far this year to $254 billion, on pace for a record $455 billion on an annualized basis in 2019, according to a Bank of America Merrill Lynch analysis of EPFR Global data. That compares with $1.7 trillion in bond inflows over the past 10 years, the bank said. With the Federal Reserve widely expected to cut interest rates for the first time in a decade next week, investors are pondering how many more times officials could lower borrowing costs this year.”

  • FT: “Junk bond issuers snap up chance to stretch out borrowing” (https://on.ft.com/2Y91oqY) // Joe Rennison: “Longer-term debt and lower borrowing costs: that was the promise made to shareholders by Brazilian meat processor JBS, on its first-quarter earnings call a few months ago. This week, finance chief Guilherme Perboyre Cavalcanti was true to his word. The US arm of the company sold $1.25bn of high-yield bonds on Tuesday, repayable in 2030, to refinance existing debt due in 2023 and 2024. It joins several companies, many of them with low scores from credit rating agencies, that have issued longer-dated debt as borrowing costs have tumbled.”

  • FT: “FedEx accused of breaking Chinese law on Huawei parcels” (https://on.ft.com/2LF4zju) // Don Weinland: “An investigation by the Chinese government into FedEx showed the US parcel delivery service broke the law by not delivering packages to the country’s leading telecoms equipment maker Huawei, state media alleged on Friday. A report by state-backed Xinhua news agency also alleged that the probe had uncovered other violations of Chinese law by FedEx but did not provide details, in findings that come against the background of trade tensions between Beijing and Washington.”


Thoughts & Trades

The graph shows the Quebec and Ontario 2024-25-26 barbell.  Both have the 2025 at their most expensive level in years.  From this, it makes sense to sell the provincial 2025 sector.  Buying a combination of 2024 and 2026 is easy alternative.  Another option would be to move bonds into the cheaper 2027 area.

2019 Casgrain & Cie. All Rights Reserved

2019 Casgrain & Cie. All Rights Reserved