Market Update Tsys lower before May payrolls, US 10Y 2.90% (+4bps), curve 1bp steeper 2s10s. Trump tweeted “looking forward to the employment numbers” (195k headline exp, 3.9% unemp rate, 2.6% AHE), which led to additional selling in rates, along with sharply lower gilts/bunds, rally in Italian bonds. BOJ surprise cut in bond purchases weakened the belly of the JGB curve, yields ~1bps higher. S&P futures +13.75, crude lower for a second day, USD index rebounding from losses after Trump’s tweet. GOCs lower, 1bp narrower vs tsys, 10Y 2.27% vs 2.19% post Italy crisis low from Tuesday, still 25bps off the four year highs above 2.50% two weeks ago. Month end flows supportive for the long end of the GOC curve, 10s30s narrowing 1bp to 1.4bps before some selling of longs in the aft pushed it back out to 2bps. Provincials trading up to start the morning, Ont 48s, 49s lifted on screen at 78,78.5. Ont 28s @69< ont 48/28 9.4/9.2.
News headlines
Trump Appeasement Fails, So Trudeau Takes the Gloves Off (Bloomberg) After more than a year of trying to make nice, Justin Trudeau finally looks fed up with Donald Trump. Canada had pushed for an exemption from Trump’s tariffs — thinking, now naively, there’d be a perk to being a neighbor, ally and largest buyer of U.S. goods. Trudeau had bitten his tongue through skirmishes over airplanes, lumber and North American Free Trade Agreement talks.
Outrage Over U.S. Steel Tariffs Set to Spill Over Into G7 Meeting (Bloomberg) Treasury Secretary Steven Mnuchin received an earful from global finance chiefs Thursday after the Trump administration imposed steel and aluminum duties that sparked swift trade responses. Canadian Finance Minister Bill Morneau acknowledged that trade has taken center stage at a meeting of finance ministers and central bankers from the G-7 nations in a Canadian ski resort near Vancouver. On his arrival, German Finance Minister Olaf Scholz said the U.S. levies on imported metals from the European Union, Mexico and Canada are probably illegal.
Draghi’s Understudy Starts Work as ECB Navigates Italian Turmoil (Bloomberg) The new man who would step into Mario Draghi’s shoes in an emergency has just taken office. Former Spanish Finance Minister Luis de Guindos starts his job as European Central Bank vice president on Friday. He replaces Vitor Constancio on the same day that the Frankfurt-based institution celebrates its 20th anniversary, in troubled times.
Stocks Jump as Politics Ease; Treasuries Decline: Markets Wrap (Bloomberg) Stocks headed for a positive end to a tumultuous week in which political developments in Europe and escalating trade tensions roiled markets. Treasuries and the dollar edged lower as the focus shifted to U.S. jobs data due Friday. The Stoxx Europe 600 gauge headed for the biggest gain in a month, led by banks and basic-resources stocks, while S&P equity-index futures pointed to a higher U.S. open. Italy’s benchmark index rallied the most since early February as populist parties surged to power, bringing to an end a three-month political deadlock though opening the way to a period of friction with Europe.
TSX futures trade higher on global cues (Reuters) Stock futures pointed to a higher open for Canada’s main stock index on Friday, tracking gains in world stocks as political uncertainties in Italy and Spain ended. In Italy, anti-establishment parties revived coalition plans on Thursday, while in Spain Socialist Pedro Sanchez took over as prime minister on Friday, after outgoing leader Mariano Rajoy lost a confidence vote. However, the prospects of a full-blown trade war with the United States continues to loom over the markets.
Scotiabank buys MD Financial for $2.5B (BNN) The Bank of Nova Scotia () made a big play to expand its customer base on Thursday with a deal to acquire financial adviser MD Financial Management for $2.5 billion. The company provides financial planning, insurance, banking, investment and estate and trust services to 45,000 Canadian doctors and 65,000 of their family members with more than $49 billion in assets under management and administration.
Canada’s economic growth slowed in Q1 amid housing chill (BNN) The pace of economic growth in Canada slowed in the first quarter of this year to its lowest rate in nearly two years as housing investment pulled back amid new mortgage stress test rules and a cooling housing market. Statistics Canada said Thursday the economy grew at an annualized pace of 1.3 per cent for the first three months of the year. That compared with an annual pace of 1.7 per cent in the final three months of 2017.
Overnight markets
Overview: US 10yr note futures are down -0.506% at 119-27, S&P 500 futures are up 0.49% at 2718.75, Crude oil futures are down -0.85% at $66.47, Gold futures are down -0.45% at $1298.8, DXY is up 0.18% at 94.144, CAD/USD is up 0.14% at 0.7706.
| Cda Benchmarks | Yield | Tsy Benchmarks | Yield |
| 2 Year | 1.938% | 2 Year | 2.455% |
| 5 Year | 2.146% | 5 Year | 2.738% |
| 10 Year | 2.272% | 10 Year | 2.899% |
| 30 Year | 2.287% | 30 Year | 3.055% |
US Economic Data
| 8:30 AM | Change in Nonfarm Payrolls, May 223k est 190k (164k prior) |
| Change in Private Payrolls, May 218k est 190k (168k prior) | |
| Change in Manufact. Payrolls, May 18k est 20k (24k prior) | |
| Unemployment Rate, May 3.8% est 3.9% (3.9% prior) | |
| Average Hourly Earnings MoM, May 0.3% est 0.2% (0.1% prior) | |
| Average Hourly Earnings YoY, May 2.7% est 2.6% (2.6% prior) | |
| 9:45 AM | Markit US Manufacturing PMI, May est 56.6 (56.6 prior) |
| 10:00 AM | Construction Spending MoM, Apr est 0.8% (-1.7% prior) |
| ISM Manufacturing, May est 58.2 (57.3 prior) | |
| ISM Employment, May (54.2 prior) | |
| ISM Prices Paid, May est 78.0 (79.3 prior) | |
| ISM New Orders, May (61.2 prior) | |
| 06/01 | Wards Total Vehicle Sales, May est 16.70m (17.07m prior) |
Canadian Economic Data
| 8:30 AM | MLI Leading Indicator MoM, Apr (0.1% prior) |
| 9:30 AM | Markit Canada Manufacturing PMI, May (55.5 prior) |
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, Hugues Savard
Institutional Bond and Equity Desk
CTI Capital Valeurs Mobilières Inc.
Tel : (514)-861-0240
Fax: (514)-861-3230