01/10/2018

Market Update Tsys lower, off the lows of the session, in reaction to news of trade agreement between the US & Canada , 10Y 3.08% (+2bps), curve steeper. Equity futures surging on the news, S&P +13, Nasdaq +40. Sep ISM Man due at 10:00am, will be closely scrutinized for impact of US tariffs. GOC yields higher & significantly wider vs tsys on the NAFTA news, yields 5-6bps higher across the curve, the 10Y just under 2.50% the highest since May, the CAD higher (1.2813) enjoying its best two-day rally since Dec (+1.75%).

News headlines

Trump Clinches New Nafta as Canada Joins Pact With Mexico (Bloomberg) U.S. President Donald Trump is set to sign a successor to the North American Free Trade Agreement that will make modest revisions to a deal he once called a “disaster,” easing uncertainty for companies reliant on tariff-free commerce. U.S. and Canadian negotiators worked around the clock this weekend to secure an agreement just before a Sunday midnight deadline, allowing leaders from those nations and Mexico to sign the accord by late November. The 24-year-old Nafta will now be superseded by the U.S.-Mexico-Canada Agreement, or USMCA, covering a region that trades more than $1 trillion annually.

Tesla Shares Jump After SEC Settlement Leaves Musk as CEO (Bloomberg) Tesla Inc. jumped in pre-market trading after founder Elon Musk settled a lawsuit brought by regulators over his August tweet storm, reassuring investors he’ll still be calling the shots at the electric-car maker struggling to meet production goals. Under the agreement with the U.S. Securities and Exchange Commission, Musk and the company each will pay a $20 million penalty, and Musk will be removed as chairman for at least three years. In suing Musk, the agency had sought to oust him as both chairman and CEO.

U.K. Manufacturing Growth Unexpectedly Picks Up in September (Bloomberg) U.K. manufacturing growth unexpectedly picked up in September, rounding off the third quarter on an upbeat note. IHS Markit’s Purchasing Managers Index rose to 53.8 from a revised 53 in August and beating estimates for a drop to 52.5. Growth in output and new orders accelerated, while exports saw a modest recovery after a slump the previous month.

U.S. Stock Futures, Loonie, Peso Advance on Trade: Markets Wrap (Bloomberg) U.S. equity futures rallied alongside the currencies of Canada and Mexico as negotiators agreed to preserve a three-way trade bloc. The breakthrough supported equity markets, with European stocks climbing while havens including the yen and gold fell. S&P 500 futures indicated the gauge will add to its advance after finishing the best quarter since 2013 last week. The Stoxx Europe 600 Index rose for the fourth day in five, led by media and chemicals companies. Italian bonds extended their slide from last week and led European debt lower as uncertainty persisted over a budget accord. Investors will be watching the market closely; the ECB has cut monthly bond purchases in half to 15 billion euros ($17 billion) starting this month. The euro edged up, shrugging off data showing growth in euro-area factory output slid to the weakest pace in two years.

In tight election, Quebec weighs a shift to the right (Reuters) Voters in the Canadian province of Quebec will cast ballots on Monday in a close election primed to be a showdown between the long-dominant Liberals and a center-right party as immigration plays out as a key issue. The question of how many outsiders should be let into the majority French-speaking province – the second most populous in Canada – has eclipsed arguments over separatism that dominated Quebec in recent decades.

Canadian dollar, stocks rise as NAFTA salvaged (Reuters) Optimism about a reconstituted free trade agreement among the United States, Canada and Mexico and what it could mean for trade relations elsewhere helped world markets kick off the fourth quarter of the year in a positive vein. The United States and Canada salvaged NAFTA as a trilateral pact with Mexico, rescuing a $1.2 trillion open-trade zone that had been about to collapse after nearly a quarter century.

Shell, partners approve $40B LNG Canada project (BNN) Royal Dutch Shell Plc and its four partners have agreed to invest in a multibillion-dollar liquefied natural gas project in western Canada — the largest new one of its kind in years that would carve out the fastest route to Asia for North American gas. LNG Canada — comprised of Shell, Malaysia’s Petroliam Nasional Bhd, Mitsubishi Corp., PetroChina Co. and Korea Gas Corp. — is set to announce a final investment decision on the $40 billion project as early as Monday, said people with direct knowledge of the plans, who asked not to be identified because the matter isn’t public. The exact timing still hasn’t been decided. PetroChina and Korea Gas announced approvals of their share of the investment on Friday. The others partners declined to comment.

Husky Energy goes hostile with $3.3B offer for MEG Energy (BNN) Husky Energy Inc. made a $3.3 billion hostile bid for MEG Energy Corp., setting up a battle between Hong Kong billionaire Li Ka-shing’s Canadian oil company and Chinese energy giant CNOOC Ltd., a major investor in the targeted oil-sands producer. Husky Chief Executive Officer Rob Peabody says he’s taking the cash and stock proposal directly to shareholders after MEG’s board spurned an earlier offer and that his company remains prepared to speak with directors. There’s a compelling rationale in connecting MEG’s production from northwest Alberta’s oil sands with Husky’s refining system to gain the most value from each barrel of oil, he said.

Overnight markets

Overview: US 10yr note futures are down -0.145% at 118-20, S&P 500 futures are up 0.51% at 2934, Crude oil futures are up 0.25% at $73.43, Gold futures are down -0.36% at $1191.9, DXY is up 0.02% at 95.148, CAD/USD is down -0.78% at 0.7807.

Cda Benchmarks	Yield	Tsy Benchmarks	Yield
2 Year	2.282%	2 Year	2.829%
5 Year	2.417%	5 Year	2.97%
10 Year	2.495%	10 Year	3.084%
30 Year	2.482%	30 Year	3.23%

US Economic Data

9:45 AM	Markit US Manufacturing PMI, Sep est 55.6 (55.6 prior)
10:00 AM	Construction Spending MoM, Aug est 0.4% (0.1% prior)
	ISM Manufacturing, Sep est 60.0 (61.3 prior)
	ISM Employment, Sep (58.5 prior)
	ISM Price Paid, Sep est 71.4 (72.1 prior)
	ISM New Orders, Sep (65.1 prior)
10/01	Wards Total Vehicle Sales, Sep est 16.80m (16.60m prior)

Canadian Economic Data

8:30 AM	MLI Leading Indicator MoM, Aug (0.1%)
9:30 AM	Markit Canada Manufacturing, Sep (56.8 prior)
10:00 AM	Bloomberg Nanos Confidence, Sep 28th (55.7 prior)